-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HDx1ec1FnSRJdFumd6Z71YYTs/+etlmdmMOTGYB9IRNLXZ4JeKLEnIZQcj3JpfxU tPN3GrN0gPdgxiEru20/iw== 0000940944-99-000079.txt : 19990824 0000940944-99-000079.hdr.sgml : 19990824 ACCESSION NUMBER: 0000940944-99-000079 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990530 FILED AS OF DATE: 19990823 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DARDEN RESTAURANTS INC CENTRAL INDEX KEY: 0000940944 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 593305930 STATE OF INCORPORATION: FL FISCAL YEAR END: 0526 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13666 FILM NUMBER: 99697560 BUSINESS ADDRESS: STREET 1: 5900 LAKE ELLENOR DR CITY: ORLANDO STATE: FL ZIP: 32809 BUSINESS PHONE: 4072454000 MAIL ADDRESS: STREET 1: 5900 LAKE ELLENOR DRIVE CITY: ORLANDO STATE: FL ZIP: 32809 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL MILLS RESTAURANTS INC DATE OF NAME CHANGE: 19950313 10-K 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 - -------------------------------------------------------------------------------- FORM 10-K - -------------------------------------------------------------------------------- (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 30, 1999 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _________________ Commission File Number 1-13666 DARDEN RESTAURANTS, INC. (Exact name of registrant as specified in its charter) Florida 59-3305930 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 5900 Lake Ellenor Drive 32809 Orlando, Florida (Zip Code) (Address of principal executive offices) (407) 245-4000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class On which registered Common stock, without par value New York Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by Reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of Common Stock held by non-affiliates of the Registrant, based on the closing price of $21.125 per share as reported on the New York Stock Exchange on July 26, 1999: $2,708 million. Number of shares of Common Stock outstanding as of July 26, 1999: 132,717,134 (excluding 32,625,961 shares held in the treasury). DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's Proxy Statement dated August 10, 1999 are incorporated by reference into Part III, and portions of Registrant's 1999 Annual Report to Stockholders are incorporated by reference into Parts I, II and IV. PART I Item 1. BUSINESS OF DARDEN RESTAURANTS, INC. Introduction Darden Restaurants, Inc. and its subsidiaries (the "Company" or "Darden") is the world's largest full-service restaurant organization.* In the United States, as of May 30, 1999, it operated 1,106 restaurants in 49 states (the exception being Alaska), including 635 Red Lobster(R), 459 Olive Garden(R), six Olive Garden Cafe(R) and six Bahama Breeze(R) restaurants. In addition, the Company operated 39 restaurants in Canada, including 34 Red Lobster units and five Olive Garden units. All of its restaurants in North America are Company-operated. In Japan, as of May 30, 1999, Red Lobster Japan Partners, a Japanese retailer unaffiliated with Darden, operated 38 Red Lobster restaurants pursuant to an Area Development and Franchise Agreement. The Company, a Florida corporation incorporated in March of 1995, is the parent company of GMRI, Inc., a Florida corporation ("GMRI"). GMRI and other Darden subsidiaries own the operating assets of the restaurants. GMRI was originally incorporated on March 27, 1968, as Red Lobster Inns of America, Inc. The Company's principal executive offices and restaurant support center are located at 5900 Lake Ellenor Drive, Orlando, Florida 32809 (telephone number (407) 245-4000). Unless the context indicates otherwise, all references to Darden or the Company include Darden, GMRI and their respective subsidiaries. Background The Company opened its first restaurant, a Red Lobster, in Lakeland, Florida in January of 1968. Red Lobster was founded by William B. Darden, for whom the Company is named. The Company was acquired by General Mills, Inc. ("General Mills") in 1970. In May of 1995, the Company became an independent publicly held company when General Mills distributed all outstanding Darden stock to General Mills stockholders (the "Distribution"). While the expansion of the Company's two largest restaurant chains has historically been steady, the number of restaurants for both Red Lobster and Olive Garden has declined in recent years due to an increased focus on market optimization and the closing of under-performing units. Red Lobster has grown from three restaurants in operation in 1970 to 669 units in North America by the end of fiscal year 1999. Olive Garden, an internally developed concept, opened its first restaurant in December of 1982, and expanded to 459 restaurants in the United States and five restaurants in Canada by the end of fiscal year 1999. Additionally, at the end of fiscal year 1999, Olive Garden operated six cafes in food courts located in regional shopping malls within the United States. The Company's newest restaurant concept is Bahama Breeze, an internally developed concept with a Caribbean theme. At the end of fiscal year 1999, there were six Bahama Breeze restaurants. They are located in Orlando, Florida; Altamonte Springs, Florida; Memphis, Tennessee; Tampa, Florida; Raleigh, North Carolina; and Atlanta, Georgia. Strategy The Company is a leader in the casual-dining segment of the restaurant industry and is committed to the following key strategies. o Developing and operating distinctive restaurant concepts, each with its own culture, operating practices, physical environment, menu and marketing approach. o Expanding its current portfolio of restaurant concepts, and internally developing or acquiring additional concepts which can be expanded profitably. - ------------------------ * Source: Nation's Restaurant News, "Top 100," June 28, 1999 (based on numbers of company-owned restaurants). 1 o Attracting, developing and retaining experienced management and personnel committed to providing customer satisfaction and business results. o Achieving operating efficiencies by sharing support services and infrastructure among its restaurant concepts. o Maintaining consumer awareness through advertising and consumer promotions. The following table lists the number of restaurants and total sales by year of the Red Lobster, Olive Garden and Bahama Breeze concepts. The table also includes information about the now closed China Coast concept, as its operations are reflected in the Company's Five Year Financial Summary (see Part II, Item 6). Company-Operated Restaurants Open at Fiscal Year-End
Fiscal Red Olive China Bahama Total Total Sales Year Lobster Garden(a) Coast(b) Breeze Restaurants(a) (In Millions) - ------ ------- --------- -------- ------ -------------- ------------- 1970 6 6 $3.5 1971 24 24 9.1 1972 47 47 27.1 1973 70 70 48.0 1974 97 97 72.6 1975 137 137 108.5 1976 174 174 174.1 1977 210 210 229.2 1978 236 236 291.4 1979 244 244 337.5 1980 260 260 397.6 1981 291 291 528.4 1982 328 328 614.3 1983 360 1 361 718.5 1984 368 2 370 782.3 1985 372 4 376 842.2 1986 401 14 415 917.3 1987 433 52 485 1,097.7 1988 443 92 535 1,300.8 1989 490 145 635 1,621.5 1990 521 208 1 730 1,927.7 1991 568 272 1 841 2,212.3 1992 619 341 1 961 2,542.0 1993 638 400 5 1,043 2,737.0 1994 675 458 25 1,158 2,963.0 1995 715 477 51 1,243 3,163.3 1996 729 487 0 1 1,217 3,191.8 1997 703 477 0 2 1,182 3,171.8 1998 682 466 0 3 1,151 3,287.0 1999 669 464 0 6 1,139 3,458.1
- ------------------------ (a) These numbers do not include the six Olive Garden Cafes in operation as of May 30, 1999. (b) In August 1995, the Company approved the closing of all China Coast restaurants. 2 Industry Overview In the United States, the restaurant industry generates approximately $242 billion in annual sales, or roughly 36% of total consumer food expenditures.* Expenditures for restaurant dining and other meals prepared away from home have increased from 25% of the food dollar in 1955 to 44% in 1999.* Over the past 20 years, restaurant sales have grown at an annual rate that is one to two percentage points faster than the growth of food-at-home sales.* The restaurant industry is highly fragmented and is characterized by the presence of thousands of independent operators and small chains. While chain restaurants dominate the fast-food segment with a combined market share of 61%, chains account for just 22% in the full-service segment.* The Company believes that capable operators of strong multi-unit concepts will continue to increase their share of the full-service restaurant market. Casual dining is the fastest growing segment of the full-service restaurant market, with sales increasing at a 6.5% annual compound growth rate since 1992.* Today, casual dining represents 37% of full-service restaurant sales, or $41 billion.* Darden is a leader in the casual-dining segment, with approximately an eight percent market share.* Management believes that casual-dining concepts will benefit from favorable demographic trends, most notably the maturing population. Forty to sixty year olds are the most frequent users of casual-dining restaurants, and through this decade and the next, the population aged forty-five or older is projected to increase by approximately 34 million. In addition, "baby-boomers" (i.e., thirty-four to fifty-two year olds) tend to eat out more than generations before them, so, as they age, their casual dining frequency may become even higher. Finally, this group includes a high proportion of two-income families, which the Company believes could increase the demand for food-away-from-home due to a combination of more discretionary income and less discretionary time. Restaurants face growing competition from the supermarket industry which is offering improved entrees and side dishes from the deli section. Supermarkets' renewed emphasis on such "convenient meals" may have the most impact on segments of the restaurant industry in which the meals fulfill a primarily physiological objective, such as in the "quick serve" and "midscale" segments. Casual dining offers a more significant social component with the meal, a feature that the supermarkets' "convenient meals" do not readily confer. Restaurant Concepts Red Lobster Red Lobster is the largest full-service, seafood-specialty restaurant group in the United States. It offers an extensive menu featuring fresh fish, shrimp, crab, lobster, scallops, and other seafood in a casual atmosphere. The menu includes a variety of specialty seafood and non-seafood appetizers and desserts. For the eleventh consecutive year, Red Lobster was named Best Seafood Chain in America in the 1999 America's Choice In Chains national consumer survey published in the March 1, 1999 issue of Restaurants & Institutions magazine. Dinner entree prices range from $6.99 to $18.99, with fresh fish and certain lobster items available at market price. Lunch entree prices range from $4.99 to $7.99. During fiscal year 1999, the average check per person was between $14.00 and $15.00, with alcoholic beverages accounting for approximately eight percent of sales. Red Lobster also offers a lower-priced children's menu. The Company maintains approximately 100 different menus to reflect geographic differences in consumer preferences, prices and selections in its trade areas. Fiscal 1999 was a year of consistent profitable sales growth for Red Lobster. As of the close of fiscal 1999, Red Lobster had enjoyed six consecutive quarters of same-restaurant sales increases. For the year, same-restaurant sales at Red Lobster increased 7.4 percent. - ------------------------ * Sources: United States Department of Commerce Census of Retail Trade (1997); National Restaurant Association Annual Foodservice Forecast (1998); and CREST Annual Household Summary (1998). 3 Olive Garden Olive Garden is the market share leader in the Italian casual, full-service dining segment in North America with 18% of the full-service Italian category and 35% of total casual dining Italian sales at the end of fiscal year 1998.* Olive Garden's focus on Hospitaliano!, which the Company defines as "Our Passion for 100% Guest Delight", has contributed to its best-ever guest satisfaction feedback and 19 consecutive quarters of same-restaurant sales growth as of the close of fiscal year 1999. Olive Garden's menu includes a variety of authentic Italian foods, featuring fresh ingredients, and an expanded wine list with imported wines from Italy. The menu includes antipasti (appetizers); soups, salad and garlic breadsticks; baked pastas; sauteed specialties with chicken, seafood and fresh vegetables; grilled meats; and a variety of desserts. Olive Garden also uses imported coffee from Italy for its espresso and cappuccino. Dinner entree prices range from $6.95 to $16.95, and most lunch entree prices range from $4.75 to $7.95. The price of each entree also includes as much fresh salad or soup as a guest desires. During fiscal year 1999, the average check per person was $11.50 to $12.50, with alcoholic beverages accounting for slightly more than eight percent of sales. Olive Garden considers itself a family of local restaurants focused on delighting every guest with an authentic Italian dining experience. Olive Garden places importance on high standards, mutual respect, training and brand building. Its annual investment in front-line training has increased five-fold in the past four years. Olive Garden strives to apply the spirit of its advertising campaign, "When You're Here, You're Family," to both its guests and employees. RevItalia(TM), a major revitalization of each Olive Garden restaurant, is expected to take place over the next several years and is designed to provide the environment for an authentic Italian dining experience for both guests and employees. The Company believes that investments such as these have contributed to Olive Garden's success and continued profitable sales growth. Same-restaurant sales at Olive Garden increased 9.0 percent during fiscal year 1999. As previously noted, Olive Garden has had 19 consecutive quarters of same-restaurant sales increases. Expansion Strategy During fiscal year 1999, the Company opened five restaurants (excluding pre-existing restaurants relocated to other sites). It plans to open approximately 16 new Red Lobster, Olive Garden and Bahama Breeze restaurants during fiscal year 2000 (excluding relocations). The Company's new store openings by concept are shown below. Actual Projected Fiscal 1999 Fiscal 2000 ----------- ----------- Red Lobster....................... 2 5 Olive Garden...................... 0 5 Bahama Breeze..................... 3 6 --- --- Totals....................... 5 16 === === The Company's objective is to continue to expand its current portfolio of restaurant concepts, and to develop internally or acquire additional concepts which can be expanded. It is currently testing new ideas and concepts, as well as expanding its testing of Bahama Breeze in light of favorable consumer response. The Company also regularly evaluates potential acquisition candidates to assess whether they would satisfy the Company's strategic and financial objectives. At present, the Company has not identified any specific acquisitions. The Company will continue to focus on improving operational returns at Olive Garden and Red Lobster, and limit new restaurant expansion to the highest-potential sites. In addition, the Company plans to expand Bahama Breeze at a pace that will enable each new restaurant to capture the concept's full potential. The specific number of openings will also depend upon a number of factors, including the Company's ability to locate appropriate sites, - ------------------------ * Sources: United States Department of Commerce Census of Retail Trade (Dec. 1997 - Nov. 1998); Nation's Restaurant News (June 22, 1998); and CREST Annual Household Summary (1998). 4 negotiate acceptable purchase or lease terms, obtain necessary local governmental permits, complete construction, and recruit and train restaurant management and hourly personnel. Darden considers location to be a critical factor in determining a restaurant's long-term success, and the Company devotes significant effort to the site selection process for new locations. Prior to entering a market, a thorough study is conducted to determine the optimal number and placement of restaurants. The Company's site selection process utilizes a variety of analytical techniques to evaluate a number of important factors. These factors include trade area demographics, such as target population density and household income levels; competitive influences in the trade area; the site's visibility, accessibility, and traffic volume; and proximity to activity centers such as shopping malls, hotel/motel complexes, offices and universities. Members of senior management evaluate, inspect and approve each restaurant site prior to its acquisition. After site acquisition and receipt of permits, it typically takes 120 to 180 days to construct and open a new restaurant. The following table illustrates the approximate capital investment, size and dining capacity of the two Red Lobster openings (excluding relocations of existing restaurants) that occurred during fiscal year 1999. Capital Square Dining Dining Investment Feet Seats Tables ---------- ------ ------ ------ Red Lobster............. $2,722,000 6,370 194 50 Red Lobster plans to open five new restaurants during fiscal year 2000, but the actual number of openings may vary due to factors previously discussed. Olive Garden did not open new restaurants during fiscal 1999. The Company has developed a new "Tuscan Farmhouse" design with a building size of approximately 8,100 square feet and seating for approximately 250 people. Olive Garden plans to open up to five new restaurants during fiscal year 2000, but the actual number of openings may vary. Bahama Breeze opened three restaurants in fiscal 1999. The Company plans to open at least six additional Bahama Breeze restaurants during fiscal year 2000, but the actual number of openings may vary due to the factors previously discussed. The Company systematically reviews the performance of its restaurant sites to ensure that each unit meets its standards. When a unit falls below minimum standards, a thorough analysis is completed to determine the causes, and marketing and operational plans are implemented to improve that unit's performance. If performance does not improve to acceptable levels, the site is evaluated for relocation, closing or conversion to one of the Company's other concepts. In fiscal year 1999, the Company permanently closed 15 Red Lobster restaurants in the United States. One additional Red Lobster restaurant was closed in the United States during fiscal 1999, but is scheduled to relocate and re-open in fiscal year 2000. During the same period, Olive Garden permanently closed two restaurants in the United States. No restaurants were closed in Canada during fiscal 1999. During fiscal 1999, Red Lobster relocated three restaurants and rebuilt another restaurant that had been temporarily closed in fiscal 1998. These actions repositioned older Red Lobster restaurants to better locations and more contemporary buildings. These restaurants are not included in the numbers of new restaurant openings or permanent closings described above. For a discussion of restructuring and asset impairment expense or credit related to restaurant closings, see Management's Discussion of Results of Operations and Financial Condition and Note 3 of Notes to Consolidated Financial Statements on pages 22 and 34, respectively, of the Company's 1999 Annual Report to Stockholders. 5 Restaurant Operations The Company believes that high-quality restaurant management is critical to its long-term success. It also believes that its leadership position, strong success-oriented culture and various short-term and long-term incentive programs, including stock options, help attract and retain highly-motivated restaurant managers committed to providing superior customer satisfaction and outstanding business results. The Company's restaurant management structure varies by concept and restaurant size. Each restaurant is led by a general manager and one to four additional managers, depending on the operating complexity and sales volume of the restaurant. Each restaurant also employs approximately 65 to 140 hourly employees, most of whom work part-time. The Company issues detailed operations manuals covering all aspects of restaurant operations as well as food and beverage manuals which detail the preparation procedures of the Company's formulated recipes. The restaurant management teams are responsible for the day-to-day operation of each restaurant and for ensuring compliance with the Company's operating standards. Restaurant general managers report to directors at Red Lobster and Olive Garden, and each director is responsible for seven to 14 restaurants. Restaurants are visited regularly by all levels of supervision to ensure strict adherence to all aspects of the Company's standards. Each concept's vice president or director of training, together with senior operations executives, is responsible for developing and maintaining that concept's operational training programs. These efforts include a 12-to-15 week training program for management trainees, and continuing development programs for managers, supervisors and directors. The emphasis of the training and development programs varies by restaurant concept, but includes leadership, restaurant business management and culinary skills. The Company also utilizes a highly structured training program to open new restaurants, including training teams consisting of groups of employees experienced in all aspects of restaurant operations. The opening training teams typically begin on-site training one week prior to opening and remain on location one week following the opening. They are phased out when appropriate to ensure a smooth transition to the restaurant's operating staff. Quality Assurance The Company's Quality Assurance Department helps ensure that all restaurants provide high-quality food products in a clean and safe environment. Through rigorous physical evaluation and testing, the Company ensures that all seafood purchased meets or exceeds its specifications. Since 1976, the Company has maintained a microbiological laboratory to routinely test seafood and commodity products for quality. In addition, quality assurance managers visit each restaurant periodically throughout the year to ensure that food is properly handled, and to provide education and training in food safety and sanitation. The quality assurance managers also serve as a liaison to regulatory agencies on issues relating to food safety. The Company uses independent third party auditors to inspect and evaluate vendors of commodity food products. In this manner, the Company can ensure that its suppliers are maintaining good manufacturing practices and are operating with the comprehensive industry standard Hazard Analysis Critical Control Points programs in place. Purchasing and Distribution The Company's ability to ensure a consistent supply of high-quality food and supplies at competitive prices to all of its restaurant concepts depends upon procurement from reliable sources. The Company's purchasing staff sources, negotiates and buys food and supplies from more than 1,400 suppliers in 44 countries. To ensure the quality of all food products, suppliers are required to meet strict quality control standards in the development, harvest, catch and production of food products. Competitive bids, long-term contracts and long-term vendor relationships are routinely used to ensure availability of products and stability of costs. The Company believes that its seafood purchasing capabilities are a significant competitive advantage. The Company's purchasing staff routinely travels within the United States and internationally to source over 100 varieties of top-quality seafood at competitive prices. The Company believes that it has established excellent long-term relationships with key seafood vendors, and sources product directly from the vendors when possible. The Company operates a procurement office in Singapore to source products directly from Asia. While the supply of certain seafood species is volatile, the Company believes that it has demonstrated the ability to identify alternative seafood products and to adjust its menus as required. All other essential food products are available, or can be made available upon short notice, from alternative qualified suppliers. Because of the relatively rapid turnover of perishable food products, inventories in the restaurants have a modest aggregate dollar value in relation to revenues. 6 Controlled inventories of specified products are distributed to all restaurants through a national distribution company. See Note 2 of Notes to Consolidated Financial Statements on page 33 of the Company's 1999 Annual Report to Stockholders. Advertising and Marketing The Company believes that it has developed significant marketing and advertising capabilities. The Company's size enables it to be the dominant advertiser in the full-service segment of the restaurant industry. The Company leverages the efficiency of national network television advertising and supplements it with local market television advertising. The Company's restaurants appeal to a broad spectrum of consumers and it uses advertising and product promotions to attract customers. The Company implements periodic promotions as appropriate to maintain and increase its sales and profits. It also relies on radio and newspaper advertising, as well as newspaper and direct mail couponing programs to attract customers. The Company has developed and consistently utilizes sophisticated consumer marketing research techniques to monitor customer satisfaction and customers' evolving expectations. Employees At the end of fiscal year 1999, the Company employed approximately 116,700 persons. Of these employees, 1,054 were corporate personnel, 5,058 were restaurant management personnel, and the remainder were hourly restaurant personnel. Of the 1,054 corporate employees, 584 were in management and 470 were administrative or office employees. The operating executives of the Company have an average of more than 16 years of experience with the Company. The restaurant general managers average more than ten years with the Company. The Company believes that it provides working conditions and compensation that compare favorably with those of its competition. Most employees, other than restaurant management and corporate management, are paid on an hourly basis. None of the Company's employees are covered by a collective bargaining agreement. The Company considers its employee relations to be good. Management Information Systems The Company strives for leadership in the restaurant business by utilizing technology as a competitive advantage. Since 1975, computers located in the restaurants have been used to assist in the management of the restaurants. The Company has implemented systems targeted at improved financial control, cost management, enhanced guest service and improved employee effectiveness. Management information systems are designed to be used across restaurant concepts, yet are flexible enough to meet the unique needs of each specific restaurant concept. Restaurant support is provided from the restaurant support center in Orlando, Florida, seven days a week, 24 hours a day. A communications network sends and receives critical business data to and from the restaurants each night, providing timely and extensive information each morning on business activity in every location. The restaurant support center houses the Company's data center, which contains sufficient computing power to process information from all restaurants quickly and efficiently. The Company's information is processed in a secured environment to protect both the actual data and the physical assets. The Company guards against business interruption by maintaining a disaster recovery plan, which includes storing critical business information off-site and testing the disaster recovery plan at a hot-site facility. The Company uses internally developed proprietary software, as well as purchased software, with proven, non-proprietary hardware. This allows processing power in terms of hardware and software to be distributed effectively to each of the Company's restaurant locations. The Company's management believes these systems have well positioned the Company to support current needs as well as future growth. The Company is committed to maintaining an industry leadership position in information systems and computing technology. The Company utilizes a strategic information systems plan that is prepared internally and reviewed with senior management. The plan is a result of projects approved by the Executive Information Systems Steering Committee. This plan prioritizes information systems projects based upon strategic, financial, regulatory and other business advantage criteria. The Company has committed the resources necessary to ensure that its critical information systems and technology are "Year 2000 compliant" in advance of the next millennium. "Year 2000 compliant" refers to information systems and technology that accurately process date/time data (including calculating, comparing and 7 sequencing) from, into and between the twentieth and twenty-first centuries and, in particular, the years 1999 and 2000. As of May 30, 1999, virtually all of the Company's systems either have been modified to be Year 2000 compliant or have been eliminated due to changes in business requirements. The total cost to the Company of achieving Year 2000 compliant systems is not expected to have a material impact on the Company's financial condition or results of operations. For additional discussion of the Year 2000 issue, see the subsection entitled "Impact of Year 2000" in Management's Discussion of Results of Operations and Financial Condition on page 24 of the 1999 Annual Report to Stockholders. Competition The restaurant industry is intensely competitive with respect to food quality, price, service, restaurant location, concept, the attractiveness of facilities, and the effectiveness of advertising and marketing programs. The restaurant business is often affected by changes in consumer tastes; national, regional or local economic conditions; demographic trends; traffic patterns; the type, number and location of competing restaurants; and consumers' discretionary purchasing power. The Company competes within each market with national and regional chains as well as locally-owned restaurants, not only for customers but also for management and hourly personnel and suitable real estate sites. Restaurants face growing competition from the supermarket industry, which is offering "convenient meals" in the form of improved entrees and side dishes from the deli section. The Company expects intense competition to continue in all of these areas. Other factors pertaining to the Company's competitive position in the industry are addressed under the sections entitled "Purchasing and Distribution," "Advertising and Marketing," and "Management Information Systems," and elsewhere in this report. Trademarks and Related Agreements The Company regards its Red Lobster(R), Olive Garden(R) and Bahama Breeze(R) servicemarks as having significant value and as being important in marketing the restaurants. The Company's policy is to pursue registration of its important servicemarks and trademarks whenever possible and to oppose vigorously any infringement of them. The only restaurant operations outside of North America historically have been conducted through Red Lobster Japan Partners, a partnership venture with the Japanese retailer JUSCO that was established in 1982. The historical financial results of Darden exclude the results of such operations. On April 26, 1995, the Darden subsidiary, GMRI, Inc., entered into an Area Development and Franchise Agreement with Red Lobster Japan Partners, which operated 38 Red Lobster restaurants in Japan as of May 30, 1999. Darden does not have an ownership interest in Red Lobster Japan Partners. Royalty income is not expected to be material. Seasonality The Company's sales volumes fluctuate seasonally, and are generally higher in the spring and summer months, and lower in the fall and winter months. Severe weather, storms and similar conditions may impact sales volumes seasonally in some operating regions. Government Regulation The Company is subject to various federal, state and local laws affecting its business. Each of the Company's restaurants must comply with licensing requirements and regulations by a number of governmental authorities, which include health, safety and fire agencies in the state or municipality in which the restaurant is located. The development and operation of restaurants depend on selecting and acquiring suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations. To date, the Company has not been significantly affected by any difficulty, delay or failure to obtain required licenses or approvals. Presently about 8.2% of total restaurant revenues are attributable to the sale of alcoholic beverages. Regulations governing their sale require licensure by each site (in most cases, on an annual basis) and licenses may be revoked or suspended for cause at any time. These regulations relate to many aspects of restaurant operation, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. The failure of a restaurant to obtain 8 or retain these licenses would adversely affect the restaurant's operations. The Company is also subject in certain states to "dram-shop" statutes, which generally provide an injured party with recourse against an establishment that wrongfully serves alcoholic beverages to an intoxicated person causing the injury. The Company carries liquor liability coverage as part of its comprehensive general liability insurance. The Company is also subject to federal and state minimum wage laws and other laws governing such matters as overtime, tip credits, working conditions, safety standards, and hiring and employment practices. Changes in these laws during the fiscal year ended May 30, 1999, have not had a material effect on the Company's operations. The Company is currently operating under a Tip Rate Alternative Commitment ("TRAC") agreement with the Internal Revenue Service. Through increased educational and other efforts in the restaurants, the TRAC agreement reduces the likelihood of potential chain-wide employer-only FICA assessments for unreported tips. The Company is subject to federal and state environmental regulations, but these rules have not had a material effect on the Company's operations. The Company continues to monitor its facilities for compliance with the Federal Americans With Disabilities Act ("ADA") and related state statutes in order to conform to their requirements. Under the ADA and related state laws, the Company could be required to expend funds to modify its restaurants to make them more readily accessible to disabled persons, to better provide service to disabled persons, or to make reasonable accommodation for the employment of disabled persons. Executive Officers The executive officers of the Company as of the date of this report are as follows. Joe R. Lee, age 58, is Chief Executive Officer and Chairman of the Board of Darden. Mr. Lee joined Red Lobster in 1967 as a member of its opening management team, and was named its President in 1975. He was elected a Vice President of General Mills in 1976, a Group Vice President in 1979, and an Executive Vice President in 1981, was named Executive Vice President, Finance and International Restaurants in 1991, and was elected a Vice Chairman of General Mills in 1992 with responsibility for various consumer foods businesses and corporate staff functions. Mr. Lee was elected a director of General Mills in 1985. He was named Chief Executive Officer of Darden in December of 1994. Blaine Sweatt, III, age 51, is President, New Business Development and an Executive Vice President of Darden. He joined General Mills in 1976 in the Red Lobster organization and was named Director of New Restaurant Concept Development in 1981. Mr. Sweatt led the teams that developed the Olive Garden and Bahama Breeze concepts, among others. He was named Vice President in 1985 and Senior Vice President in 1994. Mr. Sweatt has been Executive Vice President and a director of Darden since 1995. Bradley D. Blum, age 45, is President of Olive Garden and an Executive Vice President of Darden. Mr. Blum joined General Mills in 1978. He was named Director of Marketing in 1984, responsible for Big G Cereals, and he became Vice President of Big G New Enterprises in 1989. In 1990, he was named Vice President of Marketing for Cereal Partners Worldwide, General Mills' joint venture with Nestle, headquartered in Switzerland. He joined the Company in 1994 as Senior Vice President of Marketing for Olive Garden and was named President of Olive Garden in December of 1994. He was named Senior Vice President of Darden in September of 1995 and has been Executive Vice President and a director of Darden since September of 1997. Richard E. Rivera, age 52, was named President of Red Lobster and Executive Vice President of Darden in December of 1997. Mr. Rivera began his career with Steak and Ale Restaurants of America and has held many management positions within the industry over the past 25 years. Prior to joining Red Lobster, from 1994 to 1996, Mr. Rivera served as President and Chief Executive Officer of RARE Hospitality International, Inc., owner of LongHorn Steakhouse restaurants. Mr. Rivera has been a director of Darden since joining the Company in December of 1997. Linda J. Dimopoulos, age 48, is Senior Vice President, Corporate Controller and Business Information Systems of Darden with overall responsibility for corporate reporting, accounting, information services and internal 9 audit. Ms. Dimopoulos joined the Company in 1982. She was named Director, Corporate Analysis in 1985. In 1986, she was named Vice President, Controller for Red Lobster, and then Vice President, Information System Services. She was named Senior Vice President, Financial Operations in August 1993, and assumed her present position in July 1998. Gary Heckel, age 46, is President of Bahama Breeze and Senior Vice President of Darden. Mr. Heckel's career in the restaurant industry includes employment with several major quick-service and casual dining restaurant companies, such as Burger King Corporation, Taco Bell Corp., and TGI Friday's, Inc. Mr. Heckel joined Darden in 1995 as Vice President, Operations in the Company's New Business Development division. He was named Senior Vice President, Operations for Bahama Breeze in August of 1997. Mr. Heckel was named President of Bahama Breeze in July of 1998 and was elected Senior Vice President of Darden in June of 1999. Daniel M. Lyons, age 46, is Senior Vice President, Human Resources of the Company with overall responsibility for human resources, including compensation, benefits, management development, staffing, corporate security, diversity management and aviation. Mr. Lyons joined the Company in 1993 as Senior Vice President of Personnel for Olive Garden. He was elected to his present position in January of 1997. Prior to joining Olive Garden, Mr. Lyons spent 18 years with the Quaker Oats Company. Robert W. Mock, age 47, is Executive Vice President, Operations of Olive Garden and Senior Vice President of Darden. Mr. Mock joined the Company in 1969 and, through the years, held management positions in various areas of the Company. In 1992, Mr. Mock was named Executive Vice President and General Manager of Red Lobster Canada. In 1994, Mr. Mock was named Executive Vice President, Operations for Olive Garden. He was named to the additional position of Senior Vice President of Darden in July 1998. Barry Moullet, age 41, is Senior Vice President, Purchasing, Distribution and Food Safety for the Company. He joined Darden in July of 1996. Prior to joining Darden, Mr. Moullet spent 15 years in the purchasing field, most recently with Restaurant Services, Inc., a Burger King purchasing co-operative. Prior to Burger King, he gained experience with Kentucky Fried Chicken and the Pillsbury Company. Mr. Moullet became an executive officer of Darden in June 1999. Clarence Otis, Jr., age 43, is Senior Vice President, Finance and Treasurer of the Company. Mr. Otis joined the Company in 1995 as Vice President and Treasurer. In July of 1997, he assumed responsibility for investor relations and was named Senior Vice President, Investor Relations and Treasurer. In July 1998, Mr. Otis assumed additional responsibilities in the area of finance and was named to his present position. Prior to joining the Company, Mr. Otis was employed by Chemical Securities, Inc. in New York where he had been Managing Director and Manager of Public Finance since 1991. Prior to his work at Chemical Securities, Mr. Otis was employed by Siebert Municipal Capital Group as Managing Director and Principal. Paula J. Shives, age 48, was elected Senior Vice President, General Counsel and Secretary of Darden in June of 1999. In that capacity, Ms. Shives succeeds Clifford L. Whitehill, who is retiring. Ms. Shives began her legal career in 1979 as Corporate Counsel for Jerrico, Inc., the predecessor to Long John Silver's Restaurants, Inc. After spending several additional years in private practice with the law firm of Greenebaum, Doll & McDonald in Lexington, Kentucky, Ms. Shives rejoined Long John Silver's Restaurants, Inc. in 1985 as Associate General Counsel, and became its Senior Vice President, General Counsel and Secretary in 1995. Ms. Shives joined Darden in May of 1999. James D. Smith, age 56, is Senior Vice President, Real Estate, Design and Construction of the Company. Mr. Smith joined General Mills in 1982 and was named Senior Vice President and Controller of the restaurant operations in 1988. In December 1994, Mr. Smith was named Senior Vice President, Finance. Subsequently, he assumed increasing responsibilities in connection with the Company's real estate development activities and was named to his present position in July of 1998. Richard J. Walsh, age 47, is Senior Vice President, Corporate Relations, with responsibility for all corporate communications, environmental relations, creative and print services, media and government, public and community relations, including the Darden Restaurants, Inc. Foundation. Mr. Walsh joined General Mills in 1984 as Manager of Government Affairs for Red Lobster. He was named Vice President of Government Relations in 1987 and was promoted to his present position in December of 1994. 10 Clifford L. Whitehill, age 68, was named Senior Vice President, General Counsel and Secretary of the Company in December of 1994. Mr. Whitehill joined General Mills in 1962 as an attorney in the Law Department. He was appointed Assistant General Counsel in 1968, elected Vice President in 1971, named General Counsel in 1975, elected Senior Vice President in 1981 and elected Secretary of General Mills in 1983. In April of 1999, Mr. Whitehill announced his retirement from Darden, effective June 21, 1999, but continues to serve the Company to facilitate his successor's transition. Available Information Darden is a reporting company under the Securities Exchange Act of 1934, as amended, and files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The public may read and copy any Company filings at the Commission's Public Reference Room at 450 Fifth Street NW, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Because the Company makes filings to the Commission electronically, this information may be accessed through the Commission's Internet site (http://www.sec.gov). The site contains reports, proxies, information statements and other information regarding issuers that file electronically with the Commission. Forward-Looking Statements Certain information included in this report and other materials filed or to be filed by the Company with the Commission (as well as information included in oral statements or written statements made or to be made by the Company) may contain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include information relating to current expansion plans and Year 2000 compliance. Such forward-looking information is based on assumptions concerning important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to restaurant development and the Year 2000 readiness of suppliers, banks, vendors and others having a direct or indirect business relationship with the Company. 11 Item 2. PROPERTIES As of May 30, 1999, the Company operated 1,145 restaurants, including 669 Red Lobster, 464 Olive Garden, six Olive Garden Cafe and six Bahama Breeze restaurants in the following locations:
Alabama (18) Arizona (24) Arkansas (10) California (92) Colorado (21) Connecticut (11) Delaware (4) Florida (113) Georgia (38) Hawaii (1) Idaho (5) Illinois (48) Indiana (34) Iowa (15) Kansas (10) Kentucky (13) Louisiana (8) Maine (3) Maryland (18) Massachusetts (7) Michigan (42) Minnesota (18) Mississippi (8) Missouri (25) Montana (2) Nebraska (7) Nevada (9) New Hampshire (3) New Jersey (27) New Mexico (8) New York (47) North Carolina (25) North Dakota (4) Ohio (67) Oklahoma (17) Oregon (10) Pennsylvania (53) Rhode Island (2) South Carolina (17) South Dakota (3) Tennessee (25) Texas (98) Utah (9) Vermont (2) Virginia (37) Washington (20) West Virginia (5) Wisconsin (21) Wyoming (2) Canada (39)
Of the Company's 1,145 restaurants open on May 30, 1999, 730 were on owned sites and 415 were on leased sites. The 415 leases are classified as follows: Land-Only Leases (Darden owns buildings and equipment)........... 283 Ground and Building Leases....................................... 75 Space/In-Line/Other Leases....................................... 57 ---- Total....................................................... 415 ==== During fiscal year 1999, the Company formed two subsidiary corporations, each of which elected to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code. These elections limit the activities for both corporations to holding certain real estate assets. The formation of these two REITs is designed primarily to assist the Company in managing its real estate portfolio and possibly to provide a vehicle to access future capital markets. Both REITs are non-public REITs. Through its subsidiary companies, Darden indirectly owns 100% of all voting stock and greater than 99.5% of the total value of each REIT. For financial reporting purposes, both REITs are included in Darden's consolidated group. The Company owns its executive offices, culinary center and training facilities in Orlando, Florida. Except in limited instances, the Company's restaurant sites and other facilities are not subject to mortgages or encumbrances securing money borrowed by the Company from outside sources. See also Notes 5 and 13 of Notes to Consolidated Financial Statements on pages 35 and 37, respectively, of the 1999 Annual Report to Stockholders. Item 3. LEGAL PROCEEDINGS The Company is from time to time made a party to legal proceedings arising in the ordinary course of business. The Company does not believe that the results of such legal proceedings, even if unfavorable to the Company, will have a materially adverse impact on its financial condition or the results of its operations. See the section entitled "Government Regulation" for a discussion of various federal, state and local regulatory matters. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 12 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock (no par value) has been registered and is traded on the New York Stock Exchange. As of July 26, 1999, the number of record holders of common stock was 36,168. Trading of the Company's common stock began on a "when issued" basis on May 9, 1995, at a price per share of $9.375. The following table sets forth the high and low sales prices for the Company's common stock for each full quarterly period from the Distribution to the end of fiscal year 1999. Per Share Sales Price of Common Stock
- ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Fiscal Year 1996 First Quarter Second Quarter Third Quarter Fourth Quarter High $11.50 $12.00 $13.25 $14.00 Low $9.75 $10.00 $10.625 $11.50 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Fiscal Year 1997 First Quarter Second Quarter Third Quarter Fourth Quarter High $12.125 $9.25 $9.375 $8.50 Low $7.50 $7.75 $6.75 $6.875 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Fiscal Year 1998 First Quarter Second Quarter Third Quarter Fourth Quarter High $10.5625 $12.00 $13.4375 $18.125 Low $8.125 $9.00 $10.50 $13.00 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Fiscal Year 1999 First Quarter Second Quarter Third Quarter Fourth Quarter High $18.00 $17.5625 $23.25 $23.375 Low $15.125 $14.1875 $15.75 $19.8125 - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
During fiscal year 1999, the Company declared two semi-annual dividends of four cents per share each. The first semi-annual dividend (four cents per share) was paid on November 1, 1998, to stockholders of record on October 10, 1998. The second semi-annual dividend (four cents per share) was paid on May 1, 1999, to stockholders of record on April 10, 1999. Item 6. SELECTED FINANCIAL INFORMATION The information for fiscal years 1995 through 1999, contained in the Five Year Financial Summary on page 43 of the Company's 1999 Annual Report to Stockholders, is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth in the section entitled "Management's Discussion of Results of Operations and Financial Condition" on pages 22 through 25 of the Company's 1999 Annual Report to Stockholders is incorporated herein by reference. Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to a variety of market risks, including fluctuations in interest rates, foreign currency exchange rates and commodity prices. To manage this exposure, Darden periodically enters into interest rate, foreign currency exchange and commodity instruments for other than trading purposes. 13 The Company uses the variance/covariance method to measure value at risk, over time horizons ranging from one week to one year, at the 99% confidence level. As of May 30, 1999, the Company's potential losses in future net earnings resulting from changes in foreign currency exchange rates, commodity prices and floating rate debt interest rate exposures were individually not more than $1 million over a period of one year. The value at risk from an increase in the fair value of long-term fixed rate debt, over a period of one year, was approximately $48 million. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows by targeting an appropriate mix of variable and fixed rate debt approved by senior management. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors' Report, Consolidated Statements of Earnings (Loss), Consolidated Balance Sheets, Consolidated Statements of Changes in Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements on pages 26 through 43 of the Company's 1999 Annual Report to Stockholders are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained in the sections entitled "Information Concerning Nominees" on pages 4 through 6, "Committees of the Board" on pages 7 through 8, and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 24 of the Company's definitive proxy materials dated August 10, 1999, is incorporated herein by reference. Certain information regarding executive officers is contained in Part I above. Item 11. EXECUTIVE COMPENSATION The information contained in the sections entitled "Board Compensation and Benefits" on page 7, "Summary Compensation Table" on pages 16 through 17, and "Option Grants in Last Fiscal Year" on page 18 of the Company's definitive proxy materials dated August 10, 1999, is incorporated by reference. The information appearing in such proxy materials under the heading "Report of Compensation Committee on Executive Compensation" is not incorporated herein. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the sections entitled "Certain Owners of Common Stock" on page 3 and "Share Ownership of Directors and Officers" on page 9 of the Company's definitive proxy materials dated August 10, 1999, is incorporated herein by reference. Item 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS The information contained in the section entitled "Certain Relationships and Related Transactions" on page 10 of the Company's definitive proxy materials dated August 10, 1999, is incorporated herein by reference. 14 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements: Consolidated Statements of Earnings (Loss) for the fiscal years ended May 30, 1999, May 31, 1998 and May 25, 1997 (incorporated by reference to page 27 of the Company's 1999 Annual Report to Stockholders) Consolidated Balance Sheets at May 30, 1999 and May 31, 1998 (incorporated by reference to page 28 of the Company's 1999 Annual Report to Stockholders) Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended May 30, 1999, May 31, 1998 and May 25, 1997 (incorporated by reference to page 29 of the Company's 1999 Annual Report to Stockholders) Consolidated Statements of Cash Flows for the fiscal years ended May 30, 1999, May 31, 1998 and May 25, 1997 (incorporated by reference to page 30 of the Company's 1999 Annual Report to Stockholders) Notes to Consolidated Financial Statements (incorporated by reference to pages 31 through 43 of the Company's 1999 Annual Report to Stockholders) 2. Financial Statements Schedules: Not applicable. 3. Exhibits: Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of certain instruments defining the rights of holders of certain long-term debt of the Company are not filed, and in lieu thereof, the Company agrees to furnish copies thereof to the Securities and Exchange Commission upon request. Exhibit Number Title 3(a) Articles of Incorporation (incorporated herein by reference to Exhibit 3(a) to the Company's Registration Statement on Form 10 effective May 5, 1995) 3(b) Bylaws (incorporated herein by reference to Exhibit 3(b) to the Company's Registration Statement on Form 10 effective May 5, 1995) 4(a) Rights Agreement dated as of May 28, 1995 between the Company and Norwest Bank Minnesota, N.A., as amended May 23, 1996, assigned to First Union National Bank, as Rights Agent, as of September 29, 1997 (incorporated by reference to Exhibit 4(a) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998) 4(b) Indenture dated as of January 1, 1996, between the Company and Norwest Bank Minnesota, National Association, as Trustee (incorporated herein by reference to the Company's Current Report on Form 8-K filed February 9, 1996) *10(a) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Plan of 1995, as amended May 23, 1996, June 17, 1997, June 26, 1998, and May 24, 1999 - ------------------------ * Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. 15 *10(b) Darden Restaurants, Inc. FlexComp Plan (incorporated herein by reference to Exhibit 10(b) to the Company's Registration Statement on Form 10 effective May 5, 1995) *10(c) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Conversion Plan, as amended (incorporated herein by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for the fiscal year ended May 26, 1996) *10(d) Supplemental Pension Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(d) to the Company's Registration Statement on Form 10 effective May 5, 1995) *10(e) Executive Health Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(e) to the Company's Registration Statement on Form 10 effective May 5, 1995) *10(f) Stock Plan for Directors of Darden Restaurants, Inc., as amended December 10, 1996, and June 26, 1998 (incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998) *10(g) Compensation Plan for Non-Employee Directors of Darden Restaurants, Inc., as amended June 17, 1997 (incorporated by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998) *10(h) Darden Restaurants, Inc. Management Incentive Plan, as amended to June 21, 1999 *10(i) Benefits Trust Agreement dated as of October 3, 1995, between the Company and Norwest Bank Minnesota, N.A., as Trustee (incorporated herein by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended May 25, 1997) *10(j) Form of Management Continuity Agreement, as amended, between the Company and certain of its executive officers (incorporated herein by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended May 25, 1997) 12 Computation of Ratio of Consolidated Earnings to Fixed Charges 13 Portions of 1999 Annual Report to Stockholders (incorporated by reference herein) 21 Subsidiaries of Darden Restaurants, Inc. 23 Independent Accountants' Consent 24 Powers of Attorney 27 Financial Data Schedule - ------------------------ * Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. 16 (b) Reports on Form 8-K. During the last quarter covered by this report, the Company filed the following three current reports on Form 8-K: (i) Current report on Form 8-K dated March 25, 1999, reporting certain financial results for the third quarter of fiscal 1999; (ii) Current report on Form 8-K dated April 20, 1999, announcing the hiring of Paula J. Shives and the retirement of Clifford L. Whitehill-Yarza; and (iii)Current report on Form 8-K dated May 4, 1999, announcing the appointment of Gary Heckel to Senior Vice President. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 19, 1999 DARDEN RESTAURANTS, INC. By: /s/ Paula J. Shives Paula J. Shives Senior Vice President, General Counsel and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date - --------- ----- ---- /s/ H.B. Atwater, Jr. Director H.B. Atwater, Jr.* /s/ Daniel B. Burke Director Daniel B. Burke* /s/ Odie C. Donald Director Odie C. Donald* /s/ Julius Erving, II Director Julius Erving, II* /s/ Michael D. Rose Director Michael D. Rose* /s/ Hector de J. Ruiz Director Hector de J. Ruiz* /s/ Maria A. Sastre Director Maria A. Sastre* /s/ Jack A. Smith Director Jack A. Smith* /s/ Bradley D. Blum Director and President, Bradley D. Blum* Olive Garden /s/ Joe R. Lee Director, Chairman of the August 23, 1999 Joe R. Lee Board and Chief Executive Officer (principal executive officer) /s/ Richard E. Rivera Director and President, Richard E. Rivera* Red Lobster /s/ Blaine Sweatt, III Director and President, Blaine Sweatt, III* New Business Development /s/ Linda J. Dimopoulos Senior Vice President - Corporate August 19, 1999 Linda J. Dimopoulos Controller and Business Information Systems (controller and principal accounting officer) /s/ Clarence Otis, Jr. Senior Vice President-Finance and August 19, 1999 Clarence Otis, Jr. Treasurer (principal financial officer)
*BY: Paula J. Shives, Attorney-In-Fact August 19, 1999 18 EXHIBIT INDEX EXHIBITS Exhibit Number Title ------- ----- 3(a) Articles of Incorporation (incorporated herein by reference to Exhibit 3(a) to the Company's Registration Statement on Form 10 effective May 5, 1995) 3(b) Bylaws (incorporated herein by reference to Exhibit 3(b) to the Company's Registration Statement on Form 10 effective May 5, 1995) 4(a) Rights Agreement dated as of May 28, 1995 between the Company and Norwest Bank Minnesota, N.A., as amended May 23, 1996, assigned to First Union National Bank, as Rights Agent, as of September 29, 1997 (incorporated by reference to Exhibit 4(a) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998) 4(b) Indenture dated as of January 1, 1996, between the Company and Norwest Bank Minnesota, National Association, as Trustee (incorporated herein by reference to the Company's Current Report on Form 8-K filed February 9, 1996) *10(a) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Plan of 1995, as amended May 23, 1996, June 17, 1997, June 26, 1998, and May 24, 1999 *10(b) Darden Restaurants, Inc. FlexComp Plan (incorporated herein by reference to Exhibit 10(b) to the Company's Registration Statement on Form 10 effective May 5, 1995) *10(c) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Conversion Plan, as amended (incorporated herein by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for the fiscal year ended May 26, 1996) *10(d) Supplemental Pension Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(d) to the Company's Registration Statement on Form 10 effective May 5, 1995) *10(e) Executive Health Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(e) to the Company's Registration Statement on Form 10 effective May 5, 1995) *10(f) Stock Plan for Directors of Darden Restaurants, Inc., as amended December 10, 1996, and June 26, 1998 (incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998) - ------------------------ * Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. 1 EXHIBITS Exhibit Number Title ------- ----- *10(g) Compensation Plan for Non-Employee Directors of Darden Restaurants, Inc., as amended June 17, 1997 (incorporated by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998) *10(h) Darden Restaurants, Inc. Management Incentive Plan, as amended to June 21, 1999 *10(i) Benefits Trust Agreement dated as of October 3, 1995, between the Company and Norwest Bank Minnesota, N.A., as Trustee (incorporated herein by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended May 25, 1997) *10(j) Form of Management Continuity Agreement, as amended, between the Company and certain of its executive officers (incorporated herein by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended May 25, 1997) 12 Computation of Ratio of Consolidated Earnings to Fixed Charges 13 Portions of 1999 Annual Report to Stockholders (incorporated by reference herein) 21 Subsidiaries of Darden Restaurants, Inc. 23 Independent Accountants' Consent 24 Powers of Attorney 27 Financial Data Schedule - ------------------------ * Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. 2 EX-10 2 EXHIBIT 10(A) EXHIBIT 10(a) STOCK OPTION AND LONG-TERM INCENTIVE PLAN OF 1995 EXHIBIT 10(a) DARDEN RESTAURANTS, INC. STOCK OPTION AND LONG-TERM INCENTIVE PLAN OF 1995 (as amended May 23, 1996, June 17, 1997, June 26, 1998, and May 24, 1999) 1. PURPOSE OF THE PLAN The purpose of the Darden Restaurants, Inc. Stock Option and Long-Term Incentive Plan of 1995 (the "Plan") is to attract and retain able employees by rewarding employees of Darden Restaurants, Inc., its subsidiaries and affiliates (defined as entities in which Darden Restaurants, Inc. owns an equity interest of 25% or more) (collectively, the "Company") who are responsible for the growth and sound development of the business of the Company, and to align the interests of all employees with those of the stockholders of the Company and to compensate certain management employees of the Company by granting stock options in lieu of salary increases or other compensation or employee benefits. 2. EFFECTIVE DATE, DURATION AND SUMMARY OF PLAN A. Effective Date and Duration This Plan shall become effective as of the effective date of the distribution of Darden Restaurants, Inc. Common Stock to the holders of General Mills, Inc. common stock. Awards may be made under the Plan until September 30, 2000. B. Summary of Option Provisions for Participants The stock option that will be awarded to employees under this Plan gives a right to an employee to purchase at a future date shares of Darden Restaurants, Inc. Common Stock at a fixed price. As an employee, you will receive an "option agreement" in your own name, which will contain the term and other conditions of the option grant. In general, each option agreement will state the number of shares of Darden Restaurants, Inc. Common Stock that you can purchase from the Company, the price at which you can purchase the shares, and the last date you can make your purchase. You will not have any taxable income when you receive the option agreement. The price at which you may buy the Darden Restaurants, Inc. shares will be equal to the market price of the Company shares on the New York Stock Exchange as of the day the option was awarded to you. If after the period that you must hold the option before you can exercise such option the price of Darden Restaurants, Inc. Common Stock has risen, you will be able to make a gain on exercising the option equal to the difference between the exercise price of the option and the market price of Darden Restaurants, Inc. shares on the date you use your option to buy shares under the terms of the option certificate. This gain will be taxable to you. You will never be obligated to buy shares of the Company if you do not wish to do so. After the required holding period before you can exercise the option, you can continue to hold the option as an employee for the remaining years of the option before making the decision whether or not to buy shares of the Company. Thereafter, the rights under the option will lapse and cannot be used by the employee. Generally you cannot sell or assign the option to any other person and the specific provisions which cover your rights in the option are covered in the full text of the Plan. 3. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Compensation Committee (the "Committee"). The Committee shall be comprised solely of non-employee, independent members of the Board of Directors (the "Board") appointed in accordance with the Company's Articles of Incorporation. Subject to the provisions of Section 14, the Committee shall have authority to adopt rules and regulations for carrying out the purpose of the Plan, select the employees to whom Awards will be made ("Participants"), determine the number of shares to be awarded and the other terms and conditions of Awards in accordance with the Plan provisions and interpret, construe and implement the provisions of the Plan; provided that if at any time Rule 16b-3 or any successor rule ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), so permits, without adversely affecting the ability of the Plan to comply with the conditions for exemption from Section 16 of the 1934 Act (or any successor provisions) provided by Rule 16b-3, the Committee may delegate its duties under the Plan in whole or in part, on such terms and conditions, to the Chief Executive Officer and to other senior officers of the Company; provided further, that only the Committee may select and make other decisions as to Awards to Participants who are subject to Section 16 of the 1934 Act and to other executives of the Company. The Committee (or its permitted delegate) may correct any defect or supply any omission or reconcile any inconsistency in any agreement relating to any Award under the Plan in the manner and to the extent it deems necessary. Decisions of the Committee (or its permitted delegate) shall be final, conclusive and binding upon all parties, including the Company, stockholders and Participants. 4. COMMON STOCK SUBJECT TO THE PLAN The shares of common stock of the Company (without par value) ("Common Stock") to be issued upon exercise of a Stock Option, awarded as Restricted Stock, or issued upon expiration of the restricted period for Restricted Stock Units, may be made available from the authorized but unissued Common Stock, shares of Common Stock held in the Company's treasury, or Common Stock purchased by the Company on the open market or otherwise. Approval of the Plan by the sole shareholder of the Company shall constitute authorization to use such shares for the Plan. The Committee, in its discretion, may require as a condition to the grant of Stock Options, Restricted Stock or Restricted Stock Units (collectively, "Awards"), the deposit of Common Stock owned by the Participant receiving such grant, and the forfeiture of such Awards, if such deposit is not made or maintained during the required holding period or the applicable restricted period. Such shares of deposited Common Stock may not be otherwise sold, pledged or disposed of during the applicable holding period or restricted period. The Committee may also determine whether any shares issued upon exercise of a Stock Option shall be restricted in any manner. The maximum aggregate number of shares of Common Stock authorized under the Plan for which Awards may be granted under the Plan is 15,000,000. Upon the expiration, forfeiture, termination or cancellation, in whole or in part, of unexercised Stock Options, or forfeiture of Restricted Stock or Restricted Stock Units on which no dividends or dividend equivalents have been paid, the shares of Common Stock subject thereto shall again be available for Awards under the Plan. The number of shares subject to the Plan, the outstanding Awards and the exercise price per share of outstanding Stock Options may be appropriately adjusted by the Committee in the event that: (i) the number of outstanding shares of Common Stock shall be changed by reason of split-ups, spin-offs, combinations or reclassifications of shares; (ii) any stock dividends are distributed to the holders of Common Stock; (iii)the Common Stock is converted into or exchanged for other shares as a result of any merger or consolidation (including a sale of assets) or other recapitalization, or other similar events occur which affect the value of the Common Stock; or (iv) the Committee determines such adjustments are appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. 5. ELIGIBLE PERSONS Only persons who are employees of the Company shall be eligible to receive Awards under the Plan ("Participants"). No Award shall be made to any member of the Committee or any other non-employee director of the Company. 6. PURCHASE PRICE OF STOCK OPTIONS The purchase price for each share of Common Stock issuable under a Stock Option shall not be less than 100% of the Fair Market Value of the shares of Common Stock on the date of grant. "Fair Market Value" as used in the Plan shall equal the mean of the high and low price of the Common Stock on the New York Stock Exchange on the applicable date. 7. STOCK OPTION TERM AND TYPE The term of any Stock Option as determined by the Committee shall not exceed 10 years from the date of grant and shall expire as of the close of business on the last day of the designated term, unless terminated earlier under the provisions of the Plan. All Stock Option grants under the Plan shall be non-qualified stock options governed by Section 83 of the Internal Revenue Code of 1986, as amended (the "Code") . 8. EXERCISE OF STOCK OPTIONS A. Of the 15,000,000 shares of Common Stock authorized for issuance hereunder, not less than 3,000,000 shall be issued only as salary replacement Stock Options ("SRO's") in lieu of salary increases, compensation or other employee benefits, subject that SRO's granted to directors pursuant to the Stock Plan for Directors (as amended) shall also be included within such 3,000,000 shares of Common Stock. Except as provided in Sections 12 and 13, each Stock Option issued as an SRO may be exercised as determined by the Committee in its discretion. B. Except as provided in Sections 12 and 13 (Change of Control and Termination of Employment), each Stock Option, other than an SRO, may be exercised from the date of grant no sooner than in increments of one-third after two years, one-third after three years and one-third after four years, subject to the Participant's continued employment with the Company and in accordance with other terms and conditions prescribed by the Committee which may specify a longer period before an option may be exercised. C. The number of shares of Common Stock subject to Stock Options granted under the Plan to any single Participant shall not exceed 10% of the total number of shares of Common Stock which may be issued under this Plan. D. A Participant exercising a Stock Option shall give notice to the Company of such exercise and of the number of shares elected to be purchased prior to 5:00 P.M. EST/EDT on the day of exercise, which must be a business day at the executive offices of the Company. At the time of purchase, the Participant shall tender the full purchase price of the shares purchased. Until such payment has been made and a certificate or certificates for the shares purchased has been issued in the Participant's name, the Participant shall possess no stockholder rights with respect to such shares. Payment of such purchase price shall be made to the Company, subject to any applicable rule or regulation adopted by the Committee: (i) in cash (including check, draft, money order or wire transfer made payable to the order of the Company); (ii) through the delivery of shares of Common Stock owned by the Participant; or (iii) by a combination of (i) and (ii) above. For determining the amount of the payment, Common Stock delivered pursuant to (ii) or (iii) shall have a value equal to the Fair Market Value of the Common Stock on the date of exercise. 9. RESTRICTED STOCK AND RESTRICTED STOCK UNITS With respect to Awards of Restricted Stock and Restricted Stock Units, the Committee shall: (i) select Participants to whom Awards will be made, provided that Restricted Stock Units may only be awarded to those employees of the Company who are employed in a country other than the United States; (ii) determine the number of shares of Restricted Stock or the number of Restricted Stock Units to be awarded; (iii)determine the length of the restricted period, which shall be no less than one year; (iv) determine the purchase price, if any, to be paid by the Participant for Restricted Stock or Restricted Stock Units; and (v) determine any restrictions other than those set forth in this Section 9. Any shares of Restricted Stock granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book-entry registration or issuance of stock certificates, and may be held in escrow. Subject to the restrictions set forth in this Section 9, each Participant who receives Restricted Stock shall have all rights as a stockholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions. Each Participant who receives Restricted Stock Units shall be eligible to receive, at the expiration of the applicable restricted period, one share of Common Stock for each Restricted Stock Unit awarded, and the Company shall issue to and register in the name of each such Participant a certificate for that number of shares of Common Stock. Participants who receive Restricted Stock Units shall have no rights as stockholders with respect to such Restricted Stock Units until such time as share certificates for Common Stock are issued to the Participants; provided, however, that quarterly during the applicable restricted period for all Restricted Stock Units awarded hereunder, the Company shall pay to each such Participant an amount equal to the sum of all dividends and other distributions paid by the Company during the prior quarter on that equivalent number of shares of Common Stock. Subject to the provisions of Section 12, for awards of Restricted Stock or Restricted Stock Units which have a deposit requirement, a Participant will be eligible to vest only in those shares of Restricted Stock or Restricted Stock Units for which personally-owned shares are on deposit with the Company as of the date the Participant's employment with the Company terminates. The total number of shares of Common Stock issued upon vesting of Restricted Stock or Restricted Stock Units granted under the Plan shall not exceed 10% of the total number of shares of Common Stock which may be issued under this Plan, and no single Participant shall receive under the Plan Restricted Stock or Restricted Stock Units which, upon vesting, would exceed 2% of the total number of shares of Common Stock which may be issued under the Plan. 10. NON-TRANSFERABILITY Except as otherwise provided in Section 9, no shares of Restricted Stock and no Restricted Stock Units shall be sold, exchanged, transferred, pledged, or otherwise disposed of during the restricted period. No Stock Options granted under this Plan shall be transferable by a Participant otherwise than (i) by the Participant's last will and testament or (ii) by the applicable laws of descent and distribution, or (iii) by gift by a Participant who is subject to Section 16 of the 1934 Act and is eligible for retirement (age 55 with 10 years of service) to a "family member" defined by the Committee. Such Stock Options shall be exercised during the Participant's lifetime only by the Participant or his or her guardian or legal representative or the donee family member. After death, such Stock Option may be exercised in accordance with Section 13B. Other than as set forth herein, no Award under the Plan shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. 11. WITHHOLDING TAXES It shall be a condition to the obligation of the Company to deliver shares upon the exercise of a Stock Option, the vesting of Restricted Stock or Restricted Stock Units and the corresponding issuance of shares of unrestricted Common Stock, that the Participant pay to the Company cash in an amount equal to all federal, state, local and foreign withholding taxes required to be collected in respect thereof. Notwithstanding the foregoing, to the extent permitted by law and pursuant to such rules as the Committee may adopt, a Participant may authorize the Company to satisfy any such withholding requirement by directing the Company to withhold from any shares of Common Stock to be issued, all or a portion of such number of shares as shall be sufficient to satisfy the withholding obligation. 12. CHANGE OF CONTROL Each outstanding Stock Option shall become immediately and fully exercisable for a period of 6 months following the date of the following occurrences, each constituting a "Change of Control": (i) if any person (including a group as defined in Section 13(d)(3) of the 1934 Act) becomes, directly or indirectly, the beneficial owner of 20% or more of the shares of the Company entitled to vote for the election of directors; (ii) as a result of or in connection with any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Company just prior to such event cease to constitute a majority of the Company's Board of Directors; or (iii)the stockholders of the Company approve an agreement providing for a transaction in which the Company will cease to be an independent publicly-owned corporation or a sale or other disposition of all or substantially all of the assets of the Company occurs. After such 6-month period the normal option exercise provisions of the Plan shall govern. In the event a Participant is terminated as an employee of the Company within 2 years after any of the events specified in (i), (ii) or (iii), his or her outstanding Stock Options at that date of termination shall become immediately exercisable for a period of 3 months. With respect to Stock Option grants outstanding as of the date of any such Change of Control which require the deposit of owned Common Stock as a condition to obtaining rights: (a) said deposit requirement shall be terminated as of the date of the Change of Control and any such deposited stock shall be promptly returned to the Participant; and (b) any restrictions on the sale of shares issued in respect of any such Stock Option shall lapse. In the event of a Change of Control, a Participant shall vest in all shares of Restricted Stock and Restricted Stock Units, effective as of the date of such Change of Control, and any deposited shares of Common Stock shall be promptly returned to the Participant. 13. TERMINATION OF EMPLOYMENT A. Termination of Employment If the Participant's employment by the Company terminates for any reason other than as specified herein or in subsections B, C or D, the Participant's Stock Options shall terminate 3 months after such termination and all shares of Restricted Stock and all Restricted Stock Units which are subject to restriction as of said termination date shall be forfeited by the Participant to the Company. In the event a Participant's employment with the Company is terminated for the convenience of the Company, as determined by the Committee, the Committee, in its sole discretion, may vest such Participant in all or any portion of outstanding Stock Options (which shall become exercisable) and/or shares of Restricted Stock or Restricted Stock Units awarded to such Participant, effective as of the date of such termination. B. Death If a Participant should die while employed by the Company, any Stock Option previously granted under this Plan may be exercised (i) by the person designated in such Participant's last will and testament or, (ii) in the absence of such designation, by the Participant's estate, or (iii) by the donee of a Stock Option made pursuant to Section 10 (iii), to the full extent that such Stock Option could have been exercised by such Participant immediately prior to death. Further, with respect to outstanding Stock Option grants which, as of the date of death, are not yet exercisable, any such option grant shall vest and become exercisable in a pro-rata amount, based on the full months of employment completed during the full vesting period of the Stock Option from the date of grant to the date of death. With respect to Stock Option grants which require the deposit of owned Common Stock as a condition to obtaining exercise rights, in the event a Participant should die while employed by the Company, said Stock Options may be exercised as provided in the first paragraph of this Section 13B, subject to the following special conditions: (i) any restrictions on the sale of shares issued in respect of any such Stock Option shall cease; and (ii) any owned Common Stock deposited by the Participant pursuant to said grant shall be promptly returned to the person designated in such Participant's last will and testament or, in the absence of such designation, to the Participant's estate, and all requirements regarding deposit by the Participant shall be terminated. A Participant who dies during any applicable restricted period shall vest in a proportionate number of shares of Restricted Stock or Restricted Stock Units, effective as of the date of death. Such proportionate vesting shall be pro-rata, based on the number of full months of employment completed during the restricted period prior to the date of death, as a percentage of the applicable restricted period. C. Retirement The Committee shall determine, at the time of grant, the treatment of the Stock Option upon the retirement of the Participant. Unless other terms are specified in the original Stock Option grant, if the termination of employment is due to a Participant's retirement on or after age 55 with 10 years of service with the Company, the Participant may exercise a Stock Option, subject to the original terms and conditions of the Stock Option. With respect to Stock Option grants which require the deposit of owned Common Stock as a condition to obtaining rights, any restrictions on the sale of shares issued in respect of any such Stock Option shall lapse at the date of any such retirement. A Participant who retires on or after the date he or she attains age 65 shall fully vest in all shares of Restricted Stock or Restricted Stock Units, effective as of the date of retirement (unless any such award specifically provides otherwise). A Participant who takes early retirement (after age 55, but prior to age 65) during any applicable restricted period may elect either of the following alternatives with respect to Restricted Stock or Restricted Stock Units (unless any such award specifically provides otherwise): (a) Leave owned shares on deposit with the Company and vest in all shares of Restricted Stock or Restricted Stock Units, effective as of the earlier of the date the Participant attains age 65 or the termination date of the applicable restricted period; or (b) Withdraw owned shares and vest in a proportionate number of shares of Restricted Stock or Restricted Stock Units, effective as of the date the shares on deposit are withdrawn. Such proportionate vesting shall be pro-rata, based on the number of full months of employment completed during the restricted period prior to the date of early retirement, as a percentage of the applicable restricted period. D. Spin-offs If the termination of employment is due to the cessation, transfer, or spin-off of a complete line of business of the Company, the Committee, in its sole discretion, shall determine the treatment of all outstanding Awards under the Plan. 14. AMENDMENTS OF THE PLAN The Plan may be terminated, modified, or amended by the Board of Directors of the Company. The Committee may from time to time prescribe, amend and rescind rules and regulations relating to the Plan. Subject to the approval of the Board of Directors, the Committee may at any time terminate, modify, or suspend the operation of the Plan, provided that no action shall be taken by the Board of Directors or the Committee without the approval of the stockholders of the Company which would: (i) materially increase the number of shares which may be issued under the Plan; (ii) materially increase the benefits accruing to Participants under the Plan; or (iii)materially modify the requirements as to eligibility for participating in the Plan. The Board of Directors shall have authority to cause the Company to take any action related to the Plan which may be required to comply with the provisions of the Securities Act of 1933, as amended, the 1934 Act, and the rules and regulations prescribed by the Securities and Exchange Commission. Any such action shall be at the expense of the Company. No termination, modification, suspension, or amendment of the Plan shall alter or impair the rights of any Participant pursuant to a prior Award without the consent of the Participant. There is no obligation for uniformity of treatment of Participants under the Plan. 15. FOREIGN JURISDICTIONS The Committee may adopt, amend, and terminate such arrangements, not inconsistent with the intent of the Plan, as it may deem necessary or desirable to make available tax or other benefits of the laws of any foreign jurisdiction, to employees of the Company who are subject to such laws and who receive Awards under the Plan. 16. NOTICE All notices to the Company regarding the Plan shall be in writing, effective as of actual receipt by the Company, and shall be sent to: Darden Restaurants, Inc. 5900 Lake Ellenor Dr. Orlando, FL 32809 Attn: General Counsel Effective May 28, 1995 EX-10 3 EXHIBIT 10(H) EXHIBIT 10(h) MANAGEMENT INCENTIVE PLAN EXHIBIT 10(h) DARDEN RESTAURANTS, INC. MANAGEMENT INCENTIVE PLAN (as amended to June 21, 1999) PART I GENERAL PROVISIONS A. OBJECTIVE OF THE PLAN It is the intent of Darden Restaurants, Inc. (the "Company") to provide financial rewards to key executives in recognition of individual contributions to the success of the Company under the provisions of this Management Incentive Plan (the "Plan"). Participant awards shall be based on the comparative impact of the position to the overall corporate results as measured by the position level, salary of the Participant, and the degree to which the individual is able to affect division/subsidiary, group and corporate results. B. ELIGIBILITY Any active key management employee of the Company or any of its subsidiaries, including such members of the Board and the Chairman as are actively employed by the Company or its subsidiaries, shall be eligible to participate in the Plan. Eligibility shall not carry any rights to participation nor to any fixed awards under the Plan. Employees on a commission basis, those who are members of any other company incentive compensation plan, except the Stock Option and Long-Term Incentive Plans of the Company, and persons acting in a consulting capacity shall not be eligible. C. PARTICIPATION As early as possible in each fiscal year (the "Plan Year"), management shall recommend from those eligible a list of proposed Participants in the Plan, and the Compensation Committee of the Board of Directors (the "Committee") thereupon shall determine and cause to be notified those who have been selected as Participants for the current Plan Year. Participants shall be those persons holding positions which most significantly affect operating results and provide the greatest opportunity to contribute to current earnings and the future success of the Company. During the year, other Participants may be added because of promotion or for other reasons warranting their inclusion, or Participants may be excluded from active participation because of demotion or other reasons warranting their exclusion. PART II BASE CASH AWARDS The size of a Participant's base cash incentive award ("Base Cash Award") under this Plan shall be preliminarily determined by the following formula: (Eligible Base Salary Earnings) x (Target Incentive Percent) x (Individual Performance Rating) x (Corporate/Unit Composite Rating) = (Base Cash Award) A. ELIGIBLE BASE SALARY EARNINGS The Eligible Base Salary Earnings is the total amount of regular base pay actually paid to a Plan Participant during the portion of the year the Participant is covered by the Plan. B. TARGET INCENTIVE PERCENT The Target Incentive Percent shall be determined by the Senior Vice President-Human Resources using the following guidelines: The Target Incentive Percent will be determined based on job level at the time participation in the Plan commences. Persons transferred to a higher or lower job level during a Plan Year will have their Target Incentive Percent revised as of the effective date of the change in position. C. INDIVIDUAL PERFORMANCE RATING Individual performance for the Plan Year will be determined as follows: 1. At the beginning of each Plan Year, each Participant will develop written objectives for the year which are directly related to specific job accountabilities. 2. The individual objectives will be reviewed with each Participant's supervisor for acceptance and will become the primary basis for establishing the Individual Performance Rating for the year. For the Chief Executive Officer, such objectives will be reviewed and approved by the Committee. 3. Near the end of each Plan Year, each Participant will submit to his or her supervisor, a Summary of Accomplishments related to individual performance during the year. Based on this information and other information related to individual performance or job accountabilities, the supervisor will assign an individual rating from the following range: 0.00 - .55 Unsatisfactory Performance .60 - .85 Needs Improvement .90 - 1.15 Successful Performance 1.20 - 1.45 Highly Successful Performance - 1.50 Exceptional Performance D. UNIT/CORPORATE PERFORMANCE RATING 1. Unit Rating Near the end of the Plan Year, each Participant will submit to his or her supervisor, a Unit Achievement Summary, which outlines the performance of his or her respective unit during the Plan Year and relates directly to annual program, the Company's long-range plans and other key operating objectives. This Unit Achievement Summary will be used, along with other information related to unit performance, in establishing a unit rating with a range of .0 (Unsatisfactory) to 2.0 (Outstanding and Exceptional Performance) in the same manner or ratings for Individual Performance Ratings. 2. Corporate Rating At the beginning of each Plan Year, the Committee shall establish a rating schedule based upon the Company's growth in Earnings Per Share (Pre-LIFO) and the Company's Return on Capital for the Plan Year. Based on this schedule, the Committee will, at the end of each Plan Year, establish a corporate rating for the year. Individual and unit ratings will be recommended by the Participant's manager and reviewed by one additional level of management. All individual and unit ratings for Plan Participants will be submitted to the Company's Incentive Committee for review and approval. 3. Special Projects The Committee, pursuant to the provision of this Plan, may also designate a Participant as a member of a Special Project and the minimum and maximum ratings for such a Special Project. If so designated, such a Participant may be allowed or required to defer up to 100% of each Plan Year's incentive award during the term of the Special Project, such deferred percentage being within a range set by management. This deferred amount shall be increased or decreased at the completion or termination of the project by a final Special Project multiplier of between 0.0 and 4.0 as determined by the Committee. 4. Unit/Corporate Weightings The ratings established in 1., 2. and 3. above shall be weighted based on job level according to the following schedule: Corporate Unit Portion Portion Senior Corporate Officers 100% 0% Vice Chairman 100% 0% Restaurant Concept Presidents 20% 80% Restaurant Senior Officer 10% 90% Restaurant Concept Officers 0% 100% Corporate Staff Officers 100% 0% Special Projects 0% (to*) 100% * Percentage to be set by Committee action for each project. E. REVIEW AND APPROVAL OF RATINGS All individual and unit ratings will be determined by the Participant's manager and reviewed and approved by one additional level of management. In addition, the Incentive Committee shall review and approve all ratings prior to their submissions to the Committee. The final ratings and incentive award amounts shall be reviewed and approved by the Committee which shall have full authority and discretion to set all final Base Cash Awards. PART III STOCK MATCHING PROVISIONS A. ALTERNATIVES FOR PARTICIPATION IN STOCK MATCHING Subject to the provisions set forth below (the "Stock Matching Provisions"), Participants under age 55 are eligible to receive additional incentive compensation in the form of common stock of the Company ("Common Stock") contributed by the Company ("Stock Matching") under the terms of the Company's Stock Option and Long-Term Incentive Plans, and Participants age 55 or over may elect to receive all or a portion of their additional incentive compensation in the form of Stock Matching and/or an "Additional Cash Award." 1. Participants under age 55 as of the last day of the Plan Year are eligible to participate in the Stock Matching Provisions of the Plan by depositing shares of Common Stock with a Fair Market Value equal to either 15% or 25% of their Base Cash Award, depending on job level. 2. Participants age 55 or over as of the last day of the Plan Year may elect full, partial, or no participation in the Stock Matching Provisions according to the following schedule:
25% Match 15% Match ------------------------------------- ------------------------------------ Fair Market Value of Fair Market Value of Level of Stock Shares to be Shares to be Matching Deposited as % of Additional Deposited as % of Additional Participation Base Cash Award Cash Award Base Cash Award Cash Award ------------- -------------------- ---------- -------------------- ---------- Full Participation 25% 0% 15% 0% Partial 15% 6% 9% 3% Participation 10% 9% 6% 5% 5% 12% 3% 7% No Participation in Stock Matching 0% 15% 0% 9%
3. On or before the December 31 immediately preceding the end of the Plan Year, Participants must notify the Company in writing of the applicable participation alternatives elected under the Stock Matching Provisions. Elections regarding Stock Matching participation are effective for the current Plan Year. B. PARTICIPATION IN STOCK MATCHING 1. The Company shall notify each Participant who participates in the Stock Matching Provisions of the maximum number of shares of Common Stock which they are permitted to deposit under the Plan, and Participants may choose to deposit all or any portion of the number of shares so permitted to be deposited (the "Original Deposit"). Participants can make their Original Deposit at any time after they receive their Base Cash Award, but Participants must deposit such shares with the Company (the "Agent") no later than the December 31 immediately following the end of the Plan Year. 2. Any Participant who dies, retires on or after age 65, elects early retirement after age 55, or is permanently disabled and unable to work as determined by the Committee, either during a Plan Year or prior to the final date for depositing the Original Deposit shares for such Plan Year (December 31), shall not be eligible to participate in the Stock Matching Provisions, but instead, such Participant, or the Participant's legal representative, shall receive an Additional Cash Award for the Plan Year in an amount equal to fifteen percent (15%) or twenty-five percent (25%) of any Base Cash Award paid or payable for that Plan Year. C. DISTRIBUTIONS AND WITHDRAWALS 1. Restricted Stock As soon as practical following the Original Deposit by a Participant, the Company shall, under the terms of the Company's Stock Option and Long Term Incentive Plans, match these shares and either deposit with the Agent for the Participant's account one share of Common Stock for each share of the Original Deposit or evidence issuance of one share of Common Stock for each share of the Original Deposit in book entry form as reflected on the master stockholder records of the Company. The Company matching shares (the "Restricted Stock") shall vest and be delivered to the Participant in accordance with the terms of the plan under which they are issued and as determined by the Committee. 2. Temporary Withdrawal for Option Exercise A Participant may temporarily withdraw all or a portion of the shares on deposit for all Plan Years (other than Restricted Stock) in order to exercise Company stock options, subject to an equal number of shares of Common Stock being promptly redeposited with the Agent after such exercise. D. DEFINITION OF PLAN YEAR For stock matching purposes, the Plan Year shall be defined as the Company's fiscal year. PART IV DEFERRAL OF PAYMENT OF CASH INCENTIVE AWARDS Subject to rules adopted by the Committee, a Participant may elect to defer all or a portion of a Base Cash Award and any additional cash award received (collectively "Cash Award") during each calendar year in accordance with the terms and conditions of the Company's FlexComp Plan. In order to defer all or a portion of the Cash Award for a particular calendar year, a Participant must make a valid election by executing and filing a Deferral Election Form with the Company on or before the December 31 immediately preceding the end of the Plan Year. PART V PLAN ADMINISTRATION This Plan shall be effective in each fiscal year of the Company and shall be administered by the Committee and the Committee shall have full authority to interpret the Plan. Such interpretations of the Committee shall be final and binding on all parties, including the Participants, survivors of the Participant, and the Company. The Committee shall have the authority to delegate the duties and responsibilities of administering the Plan, maintaining records, issuing such rules and regulations as it deems appropriate, and making the payments hereunder to such employees or agents of the Company as it deems proper. The Board, or if specifically delegated, its delegate, may amend, modify or terminate the Plan at any time, provided, however, that no such amendment, modification or termination shall adversely affect any accrued benefit under the Plan to which a Participant, or the Participant's beneficiary, is entitled prior to the date of such amendment or termination, unless the Participant, or the Participant's beneficiary, becomes entitled to an amount equal to the value of such benefit under another plan, program or practice adopted by the Company. Notwithstanding the above, no amendment, modification, or termination which would affect benefits accrued under this Plan prior to such amendment, modification or termination may occur after a Change of Control without the written consent of a majority of the Participants determined as of the day before such Change of Control. A Change of Control shall mean the occurrence of any of the following events: (a) any person (including a group as defined in Section 13(d)(3) of the Securities Exchange Act of 1934) becoming, directly or indirectly, the beneficial owner of twenty percent (20%) or more of the shares of stock of the Company entitled to vote for the election of directors; (b) as a result of or in connection with any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Company just prior to such event shall cease to constitute a majority of the Company's Board of Directors; or (c) the stockholders of the Company approve an agreement providing for a transaction in which the Company will cease to be an independent publicly-owned corporation or a sale or other disposition of all or substantially all of the assets of the Company occurs. In the event the Company shall effect one or more changes, split-ups or combinations of shares of Common Stock or one or more other like transactions, the Board or the Committee may make such adjustment, upward or downward, in the number of shares of Common Stock to be deposited by the Participants as shall appropriately reflect the effect of such transactions. In the event the Company shall distribute shares of a subsidiary of the Company to its stockholders in a spin-off transaction, the shares of stock of the subsidiary distributed to Participants which are attributable to Restricted Stock shall be vested and delivered to the Participants subject to any specific instructions of the Committee. Neither any benefit payable hereunder nor the right to receive any future benefit under the Plan may be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process, and if any attempt is made to do so, or a person eligible for any benefits becomes bankrupt, the interest under the Plan of the person affected may be terminated by the Committee which, in its sole discretion, may cause the same to be held or applied for the benefit of one or more of the dependents of such person or make any other disposition of such benefits that it deems appropriate. All questions pertaining to the construction, validity and effect of the Plan shall be determined in accordance with the laws of the United States and the laws of the State of Florida. Effective as of June 21, 1999. EX-12 4 EXHIBIT 12 EXHIBIT 12 COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES EXHIBIT 12 DARDEN RESTAURANTS, INC. COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES (Historical and Pro Forma) Computation of Ratio of Historical Consolidated Earnings to Fixed Charges
Fiscal Year Ended -------------------------------------------------------------------------------------------------------------------- May 30, May 31, May 25, May 26, May 28, 1999 1998 1997 1996 1995 -------------------------------------------------------------------------------------------------------------------- ($ Amounts in Thousands) Consolidated Earnings from Operations before Restructuring and Asset Impairment Expense or Credit, Cumulative Effect of Accounting Changes and Income Taxes.......................... $ 207,414 $ 153,672 $ 75,401 $ 188,718 $ 164,446 Plus Fixed Charges.................................. 39,929 38,569 39,582 40,822 42,685 Less Capitalized Interest........................... (593) (1,018) (739) (2,007) (4,327) --------- --------- --------- --------- --------- Consolidated Earnings from Operations before Restructuring and Asset Impairment Expense or Credit, Cumulative Effect of Accounting Changes and Income Taxes Available to Cover Fixed Charges..................................... $ 246,750 $ 191,223 $ 114,244 $ 227,533 $ 202,804 ========= ========= ========= ========= ========= Ratio of Consolidated Earnings to Fixed Charges..... 6.18 4.96 2.89 5.57 4.75 ========= ========= ========= ========= ========= Computation of Ratio of Pro Forma Consolidated Earnings to Fixed Charges Fiscal Year Ended -------------------------------------------------------------------------------------------------------------------- May 30, May 31, May 25, May 26, May 28, 1999 1998 1997 1996 1995 -------------------------------------------------------------------------------------------------------------------- ($ Amounts in Thousands) Pro Forma Consolidated Earnings from Operations before Restructuring and Asset Impairment Expense or Credit, Cumulative Effect of Accounting Changes and Income Taxes............... $ 207,414 $ 153,672 $ 75,401 $ 188,718 $ 159,076 Plus Fixed Charges.................................. 39,929 38,569 39,582 40,822 42,685 Less Capitalized Interest........................... (593) (1,018) (739) (2,007) (4,327) --------- --------- --------- --------- --------- Pro Forma Consolidated Earnings from Operations before Restructuring and Asset Impairment Expense or Credit, Cumulative Effect of Accounting Changes and Income Taxes Available to Cover Fixed Charges............................ $ 246,750 $ 191,223 $ 114,244 $ 227,533 $ 197,434 ========= ========= ========= ========= ========= Ratio of Pro Forma Consolidated Earnings to Fixed Charges..................................... 6.18 4.96 2.89 5.57 4.63 ========= ========= ========= ========= =========
For purposes of computing the ratio of consolidated earnings to fixed charges, earnings represent consolidated pretax earnings from continuing operations plus fixed charges (net of capitalized interest). Fixed charges represent interest (whether expensed or capitalized) and 40 percent (the percent deemed representative of the interest factor) of minimum restaurant and equipment lease payments for continuing operations. The pro forma adjustments to the historical consolidated statement of earnings for the fiscal year ended May 28, 1995 consist of (a) additional annual general and administrative expenses of $5,370 which would have been incurred by Darden as a separate publicly-held company, based on estimates by the management of Darden and General Mills, and (b) the estimated income tax benefit associated with the pro forma adjustment described in clause (a) above at an assumed combined state and federal income tax rate of 39.8 percent. EX-13 5 EXHIBIT 13 EXHIBIT 13 PORTIONS OF 1999 ANNUAL REPORT TO STOCKHOLDERS (incorporated by reference herein) EXHIBIT 13 DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 22 MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - ------------------------------------------------------------------------ Darden Restaurants, Inc. (Darden or the Company) was created as an independent, publicly held company in May 1995 through the spin-off of all of General Mills' restaurant operations to its shareholders. Darden operates 1,139 Red Lobster, Olive Garden and Bahama Breeze restaurants in the U.S. and Canada and licenses 38 restaurants in Japan. All of the restaurants in the U.S. and Canada are operated by the Company with no franchising. This discussion should be read in conjunction with the business information and the consolidated financial statements and related notes found elsewhere in this report. Darden's fiscal year ends on the last Sunday in May. REVENUES Total revenues in 1999 (52 weeks) were $3.46 billion, a five percent increase from 1998 (53 weeks). Total revenues in 1998 were $3.29 billion, a four percent increase from 1997. COSTS AND EXPENSES Food and beverage costs for 1999 were 32.8 percent of sales, a decrease of 0.2 percentage points from 1998 and a decrease of 1.2 percentage points from 1997. The higher level of food and beverage costs for 1997, as a percentage of sales, primarily resulted from the repositioning strategy at Red Lobster, initiated in 1997's second quarter, that lowered check averages and improved food by providing larger portions and enhancing food quality and presentation. Profit margins increased during 1999 and 1998 primarily as a result of increased sales, higher margin food items and favorable food costs. Restaurant labor was comparable year to year at 32.3 percent of sales in 1999 against 32.3 percent in 1998 and 32.1 percent in 1997. Restaurant expenses (primarily lease expenses, property taxes, utilities and workers' compensation costs) decreased in 1999 to 14.3 percent of sales compared to 14.7 percent in 1998 and 15.2 percent in 1997. The 1999 and 1998 decreases resulted primarily from increased sales levels. Selling, general and administrative expenses declined in 1999 to 10.4 percent of sales compared to 10.9 percent in 1998 and 11.4 percent in 1997. The 1999 and 1998 declines resulted from an overall decrease in marketing costs each year and increased sales levels. Depreciation and amortization expense of 3.6 percent of sales in 1999 decreased from 3.8 percent in 1998 and 4.3 percent in 1997. The 1999 and 1998 decreases resulted from increased sales levels, restaurant closings and asset impairment write-downs that occurred during 1997's fourth quarter. Interest expense of 0.6 percent of sales in 1999 and 1998 decreased from 0.7 percent in 1997. INCOME FROM OPERATIONS Pre-tax earnings before restructuring credit increased by 35 percent in 1999 to $207.4 million, compared to $153.7 million in 1998 and $75.4 million before restructuring and asset impairment charges in 1997. The increase in 1999 was mainly attributable to annual same-restaurant sales increases in the U.S. for both Red Lobster and Olive Garden totaling 7.4 percent and 9.0 percent, respectively. Red Lobster and Olive Garden have enjoyed six and 19 consecutive quarters of same-restaurant sales increases, respectively. The increase in 1998 was mainly attributable to substantially higher earnings at Red Lobster resulting from actions beginning in the second quarter of 1997 intended to enhance long-term performance through new menu items, bolder flavors, more choices at lower prices and service improvements. Olive Garden also posted a solid increase in earnings in 1998. Fiscal 1998 same-restaurant sales increases in the U.S. for Red Lobster and Olive Garden totaled 2.5 percent and 8.3 percent, respectively. PROVISION FOR INCOME TAXES The effective tax rate for 1999 before restructuring credit was 34.8 percent compared to 33.8 percent in 1998 and 27.9 percent before restructuring and asset impairment charges in 1997. The higher effective tax rate in 1999 resulted from higher pre-tax earnings. The 34.9 percent rate in 1999, after restructuring credit, compared to 1998's 33.8 percent rate and to 1997's 41.1 percent benefit after restructuring and asset impairment charges. The unusual effective rate in 1997 resulted from operating losses combined with federal income tax credits, both of which created an income tax benefit. NET EARNINGS AND NET EARNINGS PER SHARE BEFORE RESTRUCTURING AND ASSET IMPAIRMENT EXPENSE OR (CREDIT) Net earnings before restructuring credit for 1999 of $135.3 million or 96 cents per diluted share increased 33 percent, compared to 1998 net earnings of $101.7 million or 67 cents per diluted share. 1998 net earnings increased 87 percent, compared to net earnings before restructuring and asset impairment charges for 1997 of $54.3 million or 35 cents per diluted share. NET EARNINGS (LOSS) AND NET EARNINGS (LOSS) PER SHARE Net earnings after restructuring credit for 1999 of $140.5 million (99 cents per diluted share) compared with 1998's net earnings of $101.7 million (67 cents per diluted share) and 1997's net loss after restructuring and asset impairment charges of $(91.0) million (59 cents per diluted share). DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 23 During 1997, an after-tax restructuring and asset impairment charge of $145.4 million (93 cents per diluted share) was taken in the fourth quarter related to low-performing restaurant properties in the U.S. and Canada and other long-lived assets including those restaurants that have been closed. The pre-tax charge includes approximately $160.7 million of non-cash charges primarily related to the write-down of buildings and equipment to net realizable value and approximately $69.2 million of charges to be settled in cash related to carrying costs of buildings and equipment prior to their disposal, lease buy-out provisions, employee severance and other costs. Cash required to carry out these activities is being provided by operations and the sale of closed properties (see Note 3 of Notes to Consolidated Financial Statements). During 1999, an after-tax restructuring credit of $5.2 million (four cents per diluted share) was taken in the fourth quarter as the Company reversed a portion of its 1997 restructuring liability. The reversal resulted from the Company's decision to close fewer restaurants than identified for closure as part of the restructuring action. The credit has no effect on the Company's cash flow. (See Note 3 of Notes to Consolidated Financial Statements.) LIQUIDITY AND CAPITAL RESOURCES The Company intends to manage its business and its financial ratios to maintain an investment grade bond rating, which allows access to financing at reasonable costs. Currently, the Company's publicly issued long-term debt carries "Baa1" (Moody's Investor Services, Inc.), "BBB" (Standard & Poor's Corporation) and "BBB+" (Duff & Phelps Corporation) ratings. The Company's commercial paper has ratings of "P-2" (Moody's), "A-2" (Standard & Poor's) and "D-2" (Duff & Phelps). Darden's long-term debt includes $150 million of 6.375 percent notes due in 2006 and $100 million of 7.125 percent debentures due in 2016. The effective annual interest rate is 7.57 percent for the notes and 7.82 percent for the debentures, after consideration of loan costs, issuance discounts and costs to terminate an interest-rate swap agreement that was established prior to the distribution from General Mills. Darden's long-term debt also includes a $66.9 million commercial bank loan to the Company, with an outstanding principal balance of $60.2 million as of May 30, 1999, that is used to support two loans from the Company to the Employee Stock Ownership Plan portion of the Darden Savings Plan (the ESOP). During the fiscal year ended May 25, 1997, the ESOP refinanced $50 million in existing debt which was previously guaranteed by the Company. The refinancing was accomplished by the commercial bank's loan to the Company and a corresponding loan from the Company to the ESOP. Commercial paper is the primary source of short-term financing. Bank credit lines are maintained to ensure availability of short-term funds on an as-needed basis. Available fee-paid credit lines, all of which are unused at May 30, 1999, total $250 million. The Company's adjusted debt-to-total capital ratio (which includes 6.25 times the total annual restaurant minimum rent and 3.00 times the total annual restaurant equipment minimum rent as a component of debt and total capital) was 39 percent and 38 percent at May 30, 1999, and May 31, 1998, respectively. The Company's fixed-charge coverage ratio, which measures the number of times each year that the Company earns enough to cover its fixed charges, amounted to 6.2 times at May 30, 1999, and 5.0 times at May 31, 1998. Based on these ratios, the Company believes its financial condition remains strong. The composition of the Company's capital structure is shown in the following table. May 30, 1999 May 31, 1998 CAPITAL STRUCTURE $ In millions $ In millions - -------------------------------------------------------------------------------- Short-term debt $ 23.5 $ 75.1 Long-term debt 316.5 310.6 - -------------------------------------------------------------------------------- Total debt 340.0 385.7 Stockholders' equity 964.0 1,019.8 - -------------------------------------------------------------------------------- Total capital $ 1,304.0 $ 1,405.5 - -------------------------------------------------------------------------------- ADJUSTMENTS TO CAPITAL - -------------------------------------------------------------------------------- Leases-debt equivalent 266.0 250.0 Adjusted total debt 606.0 635.7 Adjusted total capital $ 1,570.0 $ 1,655.5 Debt-to-total capital ratio 26% 27% Adjusted debt-to-total capital ratio 39% 38% ================================================================================ DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 24 In 1999, the Company declared eight cents per share in annual dividends paid in two installments. In December 1998, the Company's Board approved an additional authorization for the ongoing stock buy-back plan whereby the Company may purchase on the open market up to 13.8 million additional shares of Darden common stock. This buy-back authorization is in addition to three previously approved authorizations by the Board in December 1997, September 1996 and December 1995 covering open market purchases of up to 15.0 million, 9.3 million and 6.5 million shares, respectively, of Darden common stock. As of May 30, 1999, 32.6 million shares were purchased under these programs. The Company typically carries current liabilities in excess of current assets, because the restaurant business receives substantially immediate payment for sales (nominal receivables), while inventories and other current liabilities normally carry longer payment terms (usually 15 to 30 days). The seasonal variation in net working capital is typically in the $10 million to $50 million range. The Company requires capital principally for building new restaurants, replacing equipment and remodeling existing units. Capital expenditures were $124 million in 1999, compared to $112 million in 1998, and $160 million in 1997 because of decisions to temporarily slow the growth in new Olive Garden and Red Lobster units. The 1999, 1998 and 1997 capital expenditures and dividend requirements were financed primarily through internally generated funds. The Company generated $348 million, $236 million, and $189 million in funds from operating activities during 1999, 1998, and 1997, respectively. IMPACT OF YEAR 2000 Background In the past, many computers, software programs, and other information technology ("IT systems"), as well as other equipment relying on microprocessors or similar circuitry ("non-IT systems"), were written or designed using two digits, rather than four, to define the applicable year. As a result, date-sensitive systems (both IT systems and non-IT systems) may recognize a date identified with "00" as the year 1900, rather than the year 2000. This is generally described as the Year 2000 issue. If this situation occurs, the potential exists for system failures or miscalculations, which could negatively impact business operations. The Securities and Exchange Commission (SEC) has asked public companies to disclose four general types of information related to Year 2000 preparedness: the company's state of readiness, costs (historical and prospective), risks and contingency plans. Accordingly, the Company has included the following discussion in this report, in addition to the Year 2000 disclosures previously filed with the SEC. State of Readiness The Company began a concerted effort and established a dedicated project team to address its Year 2000 issues in fiscal year 1997. In fiscal year 1998, the Company formalized a task force (the Year 2000 Project Office) to coordinate the Company's response to Year 2000 issues. The Year 2000 Project Office reports to the Chief Executive Officer, his executive team, and the Audit Committee of the Company's Board of Directors. Under the auspices of the Year 2000 Project Office, the Company believes that it has identified all significant IT systems and non-IT systems that require modification in connection with Year 2000 issues. Internal and external resources were used to make the required modifications and test Year 2000 readiness. The required modifications and testing of all significant systems have been completed. In addition, through its Year 2000 Project Office, the Company has communicated with suppliers, banks, vendors and others with whom it does significant business (collectively, its business partners) to determine their Year 2000 readiness and the extent to which the Company is vulnerable to any other organization's Year 2000 issues. Based on these communications and related responses, the Company is monitoring the Year 2000 preparations and state of readiness of its business partners. Although the Company is not aware of any significant Year 2000 problems with its business partners, there can be no guarantee that the systems of other organizations on which the Company's systems rely will be converted in a timely manner, or that a failure to convert by another organization, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. Costs The total costs to the Company of Year 2000 activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. As of the end of 1999, the Company had spent approximately $3.2 million on Year 2000 issues. This amount does not include the costs incurred to develop and install new systems resulting from the Company's seafood inventory accounting system project, which was already contemplated for replacement. The total costs to the Company of addressing Year 2000 issues is estimated to be less than $5 million. These total costs are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ from those estimates. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 25 Risks The Company utilizes IT systems and non-IT systems in many aspects of its business. Year 2000 problems in some of the Company's systems could possibly disrupt operations at some restaurants, but the Company does not expect that any such disruption would have a material adverse impact on the Company's operating results. The Company is also exposed to the risk that one or more of its suppliers or vendors could experience Year 2000 problems that could impact the ability of such suppliers or vendors to provide goods and services. Although this risk is lessened by the availability of alternative suppliers, the disruption of certain services, such as utilities, could, depending upon the extent of the disruption, potentially have a material adverse impact on the Company's operations. Contingency Plans The Year 2000 Project Office is in the final stages of developing contingency plans for the Company's significant IT systems and non-IT systems requiring Year 2000 modification. In addition, the Company has developed contingency plans to deal with the possibility that some suppliers or vendors might fail to provide goods and services on a timely basis as a result of Year 2000 problems. These contingency plans include the identification, acquisition and/or preparation of backup systems, suppliers and vendors. FORWARD-LOOKING STATEMENTS Certain information included in this report and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or written statements made or to be made by the Company) may contain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include information relating to current expansion plans, business development activities, and Year 2000 compliance. Such forward-looking information is based on assumptions concerning important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to real estate development and construction activities, the issuance and renewal of licenses and permits for restaurant development and operation, economic conditions, changes in federal or state laws or the administration of such laws, and the Year 2000 readiness of suppliers, banks, vendors and others having a direct or indirect business relationship with the Company. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 26 INDEPENDENT AUDITORS' REPORT - ---------------------------- The Board of Directors and Stockholders Darden Restaurants, Inc. We have audited the accompanying consolidated balance sheets of Darden Restaurants, Inc. and subsidiaries as of May 30, 1999, and May 31, 1998, and the related consolidated statements of earnings (loss), changes in stockholders' equity, and cash flows for each of the years in the three-year period ended May 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Darden Restaurants, Inc. and subsidiaries as of May 30, 1999, and May 31, 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended May 30, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP Orlando, Florida June 18, 1999 DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 27 CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - ------------------------------------------
Fiscal Year Ended - -------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) May 30, 1999 May 31, 1998 May 25, 1997 - -------------------------------------------------------------------------------------------------------------------- Sales $ 3,458,107 $ 3,287,017 $ 3,171,810 Costs and Expenses: Cost of sales: Food and beverages 1,133,705 1,083,629 1,077,316 Restaurant labor 1,117,401 1,062,490 1,017,315 Restaurant expenses 493,811 482,311 481,348 - -------------------------------------------------------------------------------------------------------------------- Total Cost of Sales $ 2,744,917 $ 2,628,430 $ 2,575,979 Selling, general and administrative 360,909 358,542 361,263 Depreciation and amortization 125,327 126,289 136,876 Interest, net 19,540 20,084 22,291 Restructuring and asset impairment expense or (credit) (8,461) 229,887 - -------------------------------------------------------------------------------------------------------------------- Total Costs and Expenses $ 3,242,232 $ 3,133,345 $ 3,326,296 - -------------------------------------------------------------------------------------------------------------------- Earnings (Loss) before Income Taxes 215,875 153,672 (154,486) Income Taxes 75,337 51,958 (63,457) ==================================================================================================================== Net Earnings (Loss) $ 140,538 $ 101,714 $ (91,029) ==================================================================================================================== Net Earnings (Loss) per Share: Basic $ 1.02 $ 0.69 $ (0.59) Diluted $ 0.99 $ 0.67 $ (0.59) ==================================================================================================================== Average Number of Common Shares Outstanding: Basic 137,300 148,300 155,600 Diluted 141,400 151,400 155,600 ====================================================================================================================
See accompanying notes to consolidated financial statements. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 28 CONSOLIDATED BALANCE SHEETS - ---------------------------
(In thousands) May 30, 1999 May 31, 1998 - -------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 40,960 $ 33,505 Receivables 20,256 27,312 Inventories 144,115 182,399 Net assets held for disposal 35,269 49,230 Prepaid expenses and other current assets 21,475 20,498 Deferred income taxes 65,662 84,597 - -------------------------------------------------------------------------------------------------------------------- Total Current Assets $ 327,737 $ 397,541 Land, Buildings and Equipment 1,473,535 1,490,348 Other Assets 104,388 96,853 - -------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,905,660 $ 1,984,742 ==================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 144,725 $ 132,938 Short-term debt 23,500 75,100 Current portion of long-term debt 2,386 5 Accrued payroll 74,265 73,240 Accrued income taxes 16,544 1,067 Other accrued taxes 25,965 24,172 Other current liabilities 246,830 252,142 - ------------------------------------------------------------------------------------------------------------------- Total Current Liabilities $ 534,215 $ 558,664 Long-term Debt 314,065 310,603 Deferred Income Taxes 72,086 77,054 Other Liabilities 21,258 18,576 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities $ 941,624 $ 964,897 - -------------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Common stock and surplus, no par value. Authorized 500,000 shares; issued and outstanding 164,661 and 161,580 shares, respectively $ 1,328,796 $ 1,286,191 Preferred stock, no par value. Authorized 25,000 shares; none issued and outstanding Retained earnings 178,008 48,327 Treasury stock, 32,541 and 20,434 shares, at cost (466,902) (239,876) Accumulated other comprehensive income (12,115) (11,749) Unearned compensation (63,751) (63,048) - -------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity $ 964,036 $ 1,019,845 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 1,905,660 $ 1,984,742 ====================================================================================================================
See accompanying notes to consolidated financial statements. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 29 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - ----------------------------------------------------------
Common Retained Accumulated Stock Earnings Other Total and (Accumulated Treasury Comprehensive Unearned Stockholders' (In thousands) Surplus Deficit) Stock Income Compensation Equity - ----------------------------------------------------------------------------------------------------------------------------- Balance at May 26, 1996 $1,266,212 $ 61,708 $ (25,037) $(10,351) $(69,895) $1,222,637 Comprehensive income: Net loss (91,029) (91,029) Other comprehensive income, foreign currency adjustment 314 314 ---------- Total comprehensive income (90,715) Cash dividends declared ($0.08 per share) (12,385) (12,385) Stock option exercises (261 shares) 1,450 1,450 Issuance of restricted stock (25 shares) 123 (123) Earned compensation 1,302 1,302 ESOP note receivable repayments, net 2,200 2,200 Income tax benefit credited to equity 871 871 Purchases of common stock for treasury (5,043 shares) (44,147) (44,147) - ----------------------------------------------------------------------------------------------------------------------------- Balance at May 25, 1997 1,268,656 (41,706) (69,184) (10,037) (66,516) 1,081,213 Comprehensive income: Net earnings 101,714 101,714 Other comprehensive income, foreign currency adjustment (1,712) (1,712) ---------- Total comprehensive income 100,002 Cash dividends declared ($0.08 per share) (11,681) (11,681) Stock option exercises (1,464 shares) 10,606 10,606 Issuance of restricted stock (238 shares), net of forfeiture adjustments 1,384 (1,404) (20) Earned compensation 2,172 2,172 ESOP note receivable repayments 2,700 2,700 Income tax benefit credited to equity 3,808 3,808 Proceeds from issuance of equity put options 1,737 1,737 Purchases of common stock for treasury (13,483 shares) (170,692) (170,692) - ----------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1998 1,286,191 48,327 (239,876) (11,749) (63,048) 1,019,845 Comprehensive income: Net earnings 140,538 140,538 Other comprehensive income, foreign currency adjustment (366) (366) ---------- Total comprehensive income 140,172 Cash dividends declared ($0.08 per share) (10,857) (10,857) Stock option exercises (2,789 shares) 25,437 25,437 Issuance of restricted stock (370 shares), net of forfeiture adjustments 4,873 (4,844) 29 Earned compensation 2,341 2,341 ESOP note receivable repayments 1,800 1,800 Income tax benefit credited to equity 9,722 9,722 Proceeds from issuance of equity put options 2,184 2,184 Purchases of common stock for treasury (12,162 shares) (227,510) (227,510) Issuance of treasury stock under Employee Stock Purchase Plan (55 shares) 389 484 873 - ----------------------------------------------------------------------------------------------------------------------------- Balance at May 30, 1999 $1,328,796 $178,008 $(466,902) $(12,115) $(63,751) $ 964,036 =============================================================================================================================
See accompanying notes to consolidated financial statements. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 30 CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------
Fiscal Year Ended - -------------------------------------------------------------------------------------------------------------------- (In thousands) May 30, 1999 May 31, 1998 May 25, 1997 - -------------------------------------------------------------------------------------------------------------------- Cash Flows - Operating Activities Net Earnings (loss) $ 140,538 $ 101,714 $ (91,029) Adjustments to reconcile net earnings (loss) to cash flow: Depreciation and amortization 125,327 126,289 136,876 Amortization of unearned compensation and loan costs 4,879 4,682 3,824 Change in current assets and liabilities 70,924 (6,791) (41,401) Change in other liabilities 2,682 (48) 323 (Gain) loss on disposal of land, buildings and equipment (1,798) 3,132 6,358 Deferred income taxes 13,967 6,496 (52,068) Non-cash restructuring and asset impairment expense or (credit) (8,461) 226,342 Other, net 162 651 (22) - -------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities $ 348,220 $ 236,125 $ 189,203 - -------------------------------------------------------------------------------------------------------------------- Cash Flows - Investing Activities Purchases of land, buildings and equipment (123,673) (112,168) (159,688) Purchases of intangibles (2,203) (1,798) (651) (Increase) decrease in other assets (8,794) (4,112) 1,844 Proceeds from disposal of land, buildings and equipment (including net assets held for disposal) 38,134 24,494 34,017 - -------------------------------------------------------------------------------------------------------------------- Net Cash Used by Investing Activities $ (96,536) $ (93,584) $ (124,478) - -------------------------------------------------------------------------------------------------------------------- Cash Flows - Financing Activities Proceeds from issuance of common stock 26,310 10,606 1,450 Income tax benefit credited to equity 9,722 3,808 871 Dividends paid (10,857) (11,681) (12,385) Purchases of treasury stock (227,510) (170,692) (44,147) Loan to ESOP (66,900) ESOP note receivable repayments 1,800 2,700 19,100 Increase (decrease) in short-term debt (51,600) 31,700 (29,200) Proceeds from issuance of long-term debt 9,848 66,900 Repayment of long-term debt (4,126) (2,704) (5,054) Payment of loan costs (213) Proceeds from issuance of equity put options 2,184 1,737 - -------------------------------------------------------------------------------------------------------------------- Net Cash Used by Financing Activities $ (244,229) $ (134,526) $ (69,578) - -------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 7,455 8,015 (4,853) Cash and Cash Equivalents - Beginning of Year 33,505 25,490 30,343 - -------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents - End of Year $ 40,960 $ 33,505 $ 25,490 ==================================================================================================================== Cash Flow from Changes in Current Assets and Liabilities Receivables 7,056 (10,979) 8,439 Refundable income taxes, net 16,968 (16,968) Inventories 38,284 (50,158) (11,516) Prepaid expenses and other current assets (1,310) 1,236 2,589 Accounts payable 11,787 19,851 (15,109) Accrued payroll 1,025 14,928 4,635 Accrued income taxes 15,477 1,067 (12,522) Other accrued taxes 1,793 1,992 3,259 Other current liabilities (3,188) (1,696) (4,208) - -------------------------------------------------------------------------------------------------------------------- Change in Current Assets and Liabilities $ 70,924 $ (6,791) $ (41,401) ====================================================================================================================
See accompanying notes to consolidated financial statements. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ (Dollar amounts in thousands, except per share data) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- A. Principles of Consolidation --------------------------- The accompanying 1999, 1998 and 1997 consolidated financial statements include the operations of Darden Restaurants, Inc. and its wholly owned subsidiaries (Darden or the Company). All significant intercompany balances and transactions have been eliminated in consolidation. Prior to 1996, the Company was a wholly-owned subsidiary of General Mills, Inc. (General Mills). The common shares of Darden were distributed by General Mills to its stockholders as of May 28, 1995. Darden's fiscal year ends on the last Sunday in May. Fiscal years 1999 and 1997 each consisted of 52 weeks. Fiscal year 1998 consisted of 53 weeks. B. Inventories ----------- Inventories are valued at the lower of cost or market value, using the "weighted average cost" method. C. Land, Buildings and Equipment ----------------------------- All land, buildings and equipment are recorded at cost. Building components are depreciated over estimated useful lives ranging from seven to 40 years using the straight-line method. Equipment is depreciated over estimated useful lives ranging from three to ten years also using the straight-line method. Accelerated depreciation methods are generally used for income tax purposes. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company periodically reviews restaurant sites and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Restaurant sites and certain identifiable intangibles to be disposed of are reported at the lower of the carrying amount or fair value, less estimated costs to sell. D. Intangible Assets ----------------- The cost of intangible assets at May 30, 1999 and May 31, 1998 amounted to $14,851 and $14,594, respectively. These costs are being amortized using the straight-line method over their estimated useful lives ranging from five to 40 years. Costs capitalized principally represent the purchase costs of leases with favorable rent terms. Accumulated amortization on intangible assets as of May 30, 1999 and May 31, 1998 amounted to $4,347 and $5,135, respectively. The Audit Committee of the Board of Directors annually reviews intangible assets. At its meeting on June 21, 1999, the Board of Directors affirmed that the carrying amounts of these assets have continuing value. E. Liquor Licenses --------------- The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed in the year incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses for fees in excess of nominal amounts are capitalized. If there is permanent impairment in the value of a liquor license due to market changes, the asset is written down to its net realizable value. Annual liquor license renewal fees are expensed. F. Foreign Currency Translation ---------------------------- The Canadian dollar is the functional currency for the Canadian restaurant operations. Assets and liabilities are translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rates prevailing throughout the period. Translation gains and losses are accumulated in a cumulative foreign currency adjustment account included within other comprehensive income as a separate component of stockholders' equity. Gains and losses from foreign currency transactions are generally included in the consolidated statements of earnings (loss) for each period. G. Pre-Opening Costs ----------------- Prior to 1998, the Company capitalized the direct and incremental costs associated with the opening of new restaurants. These costs were amortized over a one-year period from the restaurant opening date. During 1998, the Company adopted the accounting practice of expensing these costs as incurred. This change in accounting method did not have a significant impact on the Company's financial position or results of operations. H. Advertising ----------- Production costs of commercials and programming are charged to operations in the year the advertising is first aired. The costs of other advertising, promotion and marketing programs are charged to operations in the year incurred. Advertising expense was $180,563, $186,261, and $204,321, in 1999, 1998 and 1997, respectively. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 32 I. Income Taxes ------------ The Company provides for federal and state income taxes currently payable as well as for those deferred because of temporary differences between reporting income and expenses for financial statement purposes and income and expenses for tax purposes. Federal income tax credits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. J. Statements of Cash Flows ------------------------ For purposes of the consolidated statements of cash flows, amounts receivable from credit card companies and investments purchased with a maturity of three months or less are considered cash equivalents. K. Net Earnings (Loss) Per Share ----------------------------- In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share," which requires presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. As required, the Company adopted the provisions of SFAS 128 during 1998. All prior year weighted average and per share information has been restated in accordance with SFAS 128. Outstanding stock options issued by the Company represent the only dilutive effect reflected in diluted weighted average shares. Options to purchase 120,200 and 868,300 shares of common stock were excluded from the calculation of diluted earnings per share for the years ended May 30, 1999 and May 31, 1998, respectively, because their exercise prices exceeded the average market price of common shares for the period. All options were excluded from the calculation of diluted earnings per share for the year ended May 25, 1997 because their inclusion would have been antidilutive. L. Derivative Financial and Commodity Instruments ---------------------------------------------- On January 31, 1997, the Securities and Exchange Commission (SEC) issued amended disclosure rules for derivatives and exposures to market risk from derivative and other financial and certain commodity instruments. Enhanced accounting policy disclosures in accordance with this SEC release follow. The Company may, from time to time, use financial and commodities derivatives in the management of interest rate and commodities pricing risks that are inherent in its business operations. The Company may also use financial derivatives as part of its stock repurchase program as described in Note 10. Such instruments are not held or issued for trading or speculative purposes. The Company may, from time to time, use interest rate swap and cap agreements in the management of interest rate exposure. The interest rate differential to be paid or received is normally accrued as interest rates change, and is recognized as a component of interest expense over the life of the agreements. If an agreement is terminated prior to the maturity date and is characterized as a hedge, any accrued rate differential would be deferred and recognized as interest expense over the life of the hedged item. The Company uses commodities hedging instruments, including forwards, futures and options, to reduce the risk of price fluctuations related to future raw materials requirements for commodities such as coffee, soybean oil, and shrimp. The terms of such instruments generally do not exceed 12 months, and depend on the commodity and other market factors. Deferred gains and losses are subsequently recorded as cost of products sold in the statements of earnings (loss) when the inventory is sold. If the inventory is not acquired and the hedge is disposed of, the deferred gain or loss is recognized immediately in cost of products sold. The Company believes that it does not have material risk from any of the above financial instruments, and the Company does not anticipate any material losses from the use of such instruments. M. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 33 N. Accounting for Stock Options ---------------------------- During 1997, the Company adopted Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which was effective for fiscal years beginning after December 15, 1995. The statement encourages the use of a fair-value-based method of accounting for stock-based awards under which the fair value of stock options is determined on the date of grant and expensed over the vesting period. Companies may, however, continue to measure compensation costs for those plans using the method prescribed by Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Companies that continue to apply APB 25 are required to include pro forma disclosures of net earnings (loss) and net earnings (loss) per share as if the fair-value-based method of accounting defined in SFAS 123 had been applied. The Company has elected to continue to account for such plans under the provisions of APB 25 and provide the pro forma disclosure provisions of SFAS 123. O. Employee Benefit Plans ---------------------- During 1999, the Company adopted Statement of Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 revises employers' disclosures related to pension and other postretirement plans by requiring, among other things, standardization of disclosures among such plans as well as additional information on the changes in benefit obligations and fair values of plan assets. SFAS 132 had no effect on the Company's financial position or results of operations as it did not change the measurement or recognition criteria for such plans. P. Accumulated Other Comprehensive Income -------------------------------------- During 1999, the Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," which was effective for fiscal years beginning after December 15, 1997. SFAS 130 requires that all items required to be recognized as components of comprehensive income be reported in a financial statement with equal prominence to the other financial statements. Comprehensive income includes net earnings (loss) and other comprehensive income items such as foreign currency translation adjustments and unrealized gains and losses on investments. The Company's only item of other comprehensive income is foreign currency translation adjustments which have been reported separately within stockholders' equity. Q. Operating Segment ----------------- During 1999, the Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information," which was effective for fiscal years beginning after December 15, 1997. SFAS 131 establishes standards for reporting information about a company's operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. As of May 30, 1999, the Company operated 1,139 Red Lobster, Olive Garden and Bahama Breeze restaurants in North America as part of a single operating segment. The restaurants operate principally in the United States within the casual dining industry, providing similar products to similar customers. The restaurants also possess similar pricing structures resulting in similar long-term expected financial performance characteristics. Revenues from external customers are derived principally from food and beverage sales. The Company does not rely on any major customers as a source of revenue. R. Future Application of Accounting Standards ------------------------------------------ In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. SFAS 133 is effective for interim and annual periods beginning after June 15, 2000. Adoption of SFAS 133 is not expected to materially impact the Company's financial position or results of operations. NOTE 2 - ACCOUNTS RECEIVABLE - ---------------------------- Darden contracts with a national storage and distribution company to provide services that are billed to Darden on a per-case basis. In connection with these services, certain Darden inventory items are sold to the distribution company at a predetermined price when they are shipped to the distribution company's storage facilities. These items are repurchased at the same price by Darden when the inventory is delivered to Company restaurants by the distribution company. The receivable from the distribution company was $12,022 and $24,476 at May 30, 1999, and May 31, 1998, respectively. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 34 NOTE 3 - RESTRUCTURING AND ASSET IMPAIRMENT EXPENSE OR (CREDIT) - --------------------------------------------------------------- Darden recorded asset impairment charges of $158,987 in 1997 representing the difference between fair value and carrying value of impaired assets. The asset impairment charges relate to low-performing restaurant properties and other long-lived assets including those restaurants that have been closed. Fair value is generally determined based on appraisals or sales prices of comparable properties. In connection with the closing of certain restaurant properties, the Company recorded other restructuring expenses of $70,900 in 1997. During 1999, the Company reversed a portion of its 1997 restructuring liability totaling $8,461. The reversal resulted from the Company's decision to close fewer restaurants than identified for closure as part of the restructuring action. No restructuring or asset impairment expense or (credit) was charged to operating results during 1998. The components of the restructuring expense or (credit) and the after-tax and earnings per share effects of the restructuring and asset impairment expense or (credit) for 1999 and 1997 are as follows:
Fiscal Year - ------------------------------------------------------------------------------------------------- 1999 1997 - ------------------------------------------------------------------------------------------------- Carrying costs of buildings and equipment prior to disposal and employee severance costs $ (3,907) $ 27,500 Lease buy-out provisions (4,554) 30,000 Other 13,400 - ------------------------------------------------------------------------------------------------- Subtotal (8,461) 70,900 Impairment of restaurant properties and other long-lived assets 158,987 - ------------------------------------------------------------------------------------------------- Total restructuring and asset impairment expense or (credit) (8,461) 229,887 Less related income tax effect 3,236 (84,528) - ------------------------------------------------------------------------------------------------- Restructuring and asset impairment expense or (credit), net of income taxes $ (5,225) $ 145,359 ================================================================================================= Earnings per share effect - basic and diluted $ (0.04) $ 0.93 =================================================================================================
As of May 30, 1999, approximately $31,800 of carrying, employee severance and lease buy-out costs associated with the 1997 restructuring had been paid and charged against the restructuring liability. The total restructuring liability included in other current liabilities was $37,139 and $58,265 as of May 30, 1999 and May 31, 1998, respectively. The remaining restaurant closings under this restructuring action will occur during early 2000. All other actions, including disposal of the closed owned properties and the lease buy-outs related to the closed leased properties, are expected to be substantially completed during 2001. NOTE 4 - INCOME TAXES - --------------------- The components of earnings (loss) before income taxes and the provision for income taxes thereon are as follows: Fiscal Year - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Earnings (loss) before income taxes: U.S. $ 212,585 $ 149,096 $(108,687) Canada 3,290 4,576 (45,799) - -------------------------------------------------------------------------------- Earnings (loss) before income taxes $ 215,875 $ 153,672 $(154,486) - -------------------------------------------------------------------------------- Income taxes: Current: Federal $ 53,621 $ 38,730 $ (13,285) State and local 7,577 6,349 1,529 Canada 172 383 367 - -------------------------------------------------------------------------------- Total current 61,370 45,462 (11,389) - -------------------------------------------------------------------------------- Deferred (principally U.S.) 13,967 6,496 (52,068) - -------------------------------------------------------------------------------- Total income taxes $ 75,337 $ 51,958 $ (63,457) ================================================================================ During 1999, 1998 and 1997, Darden paid income taxes of $34,790, $24,630, and $15,900, respectively. The following table is a reconciliation of the U.S. statutory income tax rate to the effective income tax rate included in the accompanying consolidated statements of earnings (loss): Fiscal Year - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- U.S. statutory rate 35.0% 35.0% (35.0)% State and local income taxes, net of federal tax benefits (expense) 3.3 3.3 (3.3) Benefit of U.S. federal income tax credits (4.5) (5.8) (5.7) Other, net 1.1 1.3 2.9 - -------------------------------------------------------------------------------- Effective income tax rate 34.9% 33.8% (41.1)% ================================================================================ DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 35 The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows: May 30, 1999 May 31, 1998 - -------------------------------------------------------------------------------- Accrued liabilities $ 14,042 $ 14,004 Compensation and employee benefits 43,784 39,575 Asset disposition liabilities 24,701 32,104 Operating loss and tax credit carryforwards 1,900 8,461 Net assets held for disposal 1,339 2,074 Other 1,989 2,090 - -------------------------------------------------------------------------------- Gross deferred tax assets 87,755 98,308 - -------------------------------------------------------------------------------- Buildings and equipment (58,026) (68,405) Prepaid pension asset (15,779) (14,979) Prepaid interest (4,379) (4,696) Deferred rent and interest income (10,194) Other (5,801) (2,685) - -------------------------------------------------------------------------------- Gross deferred tax liabilities (94,179) (90,765) - -------------------------------------------------------------------------------- Net deferred tax asset (liability) $ (6,424) $ 7,543 ================================================================================ A valuation allowance for deferred tax assets is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Realization is dependent upon the generation of future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. As of May 30, 1999 and May 31, 1998, no valuation allowance has been recognized in the accompanying consolidated financial statements for the deferred tax assets because the Company believes that sufficient projected future taxable income will be generated to fully utilize the benefits of these deductible amounts. NOTE 5 - LAND, BUILDINGS AND EQUIPMENT - -------------------------------------- The components of land, buildings and equipment are as follows: May 30, 1999 May 31, 1998 - -------------------------------------------------------------------------------- Land $ 387,050 $ 382,999 Buildings 1,344,625 1,320,388 Equipment 647,687 634,626 Construction in progress 38,859 30,418 - -------------------------------------------------------------------------------- Total land, buildings and equipment 2,418,221 2,368,431 Less accumulated depreciation (944,686) (878,083) - -------------------------------------------------------------------------------- Net land, buildings and equipment $ 1,473,535 $ 1,490,348 ================================================================================ NOTE 6 - OTHER ASSETS - --------------------- The components of other assets are as follows: May 30, 1999 May 31, 1998 - -------------------------------------------------------------------------------- Prepaid pension $ 41,253 $ 39,160 Prepaid interest and loan costs 22,391 24,781 Liquor licenses 17,657 18,140 Intangible assets 10,504 9,459 Prepaid equipment maintenance 6,565 Miscellaneous 6,018 5,313 - -------------------------------------------------------------------------------- Total other assets $ 104,388 $ 96,853 ================================================================================ NOTE 7 - SHORT-TERM DEBT - ------------------------ Short-term debt at May 30, 1999 and May 31, 1998, consisted of $23,500 and $75,100 of unsecured commercial paper borrowings with original maturities of one month or less, and interest rates ranging from 5.05 percent to 5.80 percent and 5.65 percent to 5.81 percent, respectively. NOTE 8 - LONG-TERM DEBT - ----------------------- The components of long-term debt are as follows: May 30, 1999 May 31, 1998 - -------------------------------------------------------------------------------- 10-year notes and 20-year debentures as described below $ 250,000 $ 250,000 ESOP loan with variable rate of interest (5.31 percent at May 30, 1999), due December 31, 2018 60,200 62,000 Other 7,546 24 - -------------------------------------------------------------------------------- Total long-term debt 317,746 312,024 Less issuance discount (1,295) (1,416) - -------------------------------------------------------------------------------- Total long-term debt less issuance discount 316,451 310,608 Less current portion (2,386) (5) - -------------------------------------------------------------------------------- Long-term debt, excluding current portion $ 314,065 $ 310,603 ================================================================================ In January 1996, the Company issued $150,000 of unsecured 6.375 percent notes due in February 2006 and $100,000 of unsecured 7.125 percent debentures due in February 2016. The proceeds from the issuance were used to refinance commercial paper borrowings. Concurrent with the issuance of the notes and debentures, the Company terminated, and settled for cash, interest-rate swap agreements with notional amounts totaling $200,000, which hedged the movement of interest DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 36 rates prior to the issuance of the notes and debentures. The cash paid in terminating the interest-rate swap agreements is being amortized to interest expense over the life of the notes and debentures. The effective annual interest rate is 7.57 percent for the notes and 7.82 percent for the debentures, after consideration of loan costs, issuance discounts, and interest rate swap termination costs. The Company also maintains a revolving loan agreement expiring May 19, 2000, with a consortium of banks under which the Company can borrow up to $250,000. The loan agreement allows the Company to borrow at interest rates that vary based on the prime rate, LIBOR or a competitively bid rate among the members of the lender consortium, at the option of the Company. The loan agreement is available to support our commercial paper borrowing arrangements, if necessary. The Company is required to pay a facility fee of nine basis points per annum on the average daily amount of loan commitments by the consortium. The amount of interest and the annual facility fee are subject to change based on the Company's achievement of certain financial ratios and debt ratings. Advances under the loan agreement are unsecured. At May 30, 1999, and May 31, 1998, no borrowings were outstanding under this agreement. The aggregate maturities of long-term debt for each of the five years subsequent to May 30, 1999 and thereafter are $2,386 in 2000, $2,513 in 2001, $2,647 in 2002, $0 in 2003 and 2004, and $310,200 thereafter. NOTE 9 - FINANCIAL INSTRUMENTS - ------------------------------ The Company has participated in the financial derivatives markets to manage its exposure to interest rate fluctuations. The Company had interest rate swaps with a notional amount of $200,000 which it used to convert variable rates on its long-term debt to fixed rates effective May 30, 1995. The Company received the one-month commercial paper interest rate and paid fixed-rate interest ranging from 7.51 percent to 7.89 percent. The interest rate swaps were settled during January 1996 at a cost to the Company of $27,670. This cost is being recognized as an adjustment to interest expense over the term of the Company's 10-year notes and 20-year debentures (see Note 8). The following methods were used in estimating fair value disclosures for significant financial instruments: Cash equivalents and short-term debt approximate their carrying amount due to the short duration of those items. Long-term debt is based on quoted market prices or, if market prices are not available, the present value of the underlying cash flows discounted at the Company's incremental borrowing rates. The carrying amounts and fair values of the Company's significant financial instruments are as follows: May 30, 1999 May 31, 1998 - -------------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - -------------------------------------------------------------------------------- Cash and cash equivalents $ 40,960 $ 40,960 $ 33,505 $ 33,505 Short-term debt 23,500 23,500 75,100 75,100 Total long-term debt $ 316,451 $ 306,806 $ 310,608 $ 314,502 - -------------------------------------------------------------------------------- NOTE 10 - EQUITY PUT OPTIONS - ---------------------------- As a part of its stock repurchase program, the Company issued equity put options that entitle the holder to sell shares of Company common stock to the Company, at a specified price, if the holder exercises the option. In 1999 the Company issued put options for 2,000,000 shares for $2,184 in premiums. At May 30, 1999, no equity put options were outstanding. NOTE 11 - STOCKHOLDERS' RIGHTS PLAN - ----------------------------------- The Company has a stockholders' rights plan that entitles each holder of Company common stock to purchase one-hundredth of one share of Darden preferred stock for each common share owned at a purchase price of $62.50 per share, subject to adjustment to prevent dilution. The rights are exercisable when, and are not transferable apart from the Company's common stock until, a person or group has acquired 20 percent or more, or makes a tender offer for 20 percent or more, of the Company's common stock. If the specified percentage of the Company's common stock is then acquired, each right will entitle the holder (other than the acquiring company) to receive, upon exercise, common stock of either the Company or the acquiring company having a value equal to two times the exercise price of the right. The rights are redeemable by the Company's Board in certain circumstances and expire on May 24, 2005. NOTE 12 - INTEREST, NET - ----------------------- Interest expense on average ESOP debt of $61,270, $62,688, and $65,850, in 1999, 1998 and 1997, respectively, was included in compensation expense. Capitalized interest was computed using the Company's borrowing rate. The Company paid $16,356 and $17,235 for interest (net of amount capitalized) in 1999 and 1998, respectively. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 37 The components of interest, net are as follows: Fiscal Year - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Interest expense $ 21,015 $ 21,527 $ 23,336 Capitalized interest (593) (1,018) (739) Interest income (882) (425) (306) - -------------------------------------------------------------------------------- Interest, net $ 19,540 $ 20,084 $ 22,291 ================================================================================ NOTE 13 - LEASES - ---------------- An analysis of rent expense by property leased (all of which are accounted for as operating leases) is as follows: Fiscal Year - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Restaurant minimum rent $ 38,866 $ 39,140 $ 40,616 Restaurant percentage rent 1,853 1,707 1,649 Restaurant equipment minimum rent 8,511 3,465 Restaurant rent averaging expense 13 (121) 595 Transportation equipment 1,856 2,169 1,951 Office equipment 1,012 990 915 Office space 505 436 406 Warehouse space 215 217 235 - -------------------------------------------------------------------------------- Total rent expense $ 52,831 $ 48,003 $ 46,367 ================================================================================ Minimum rental obligations are accounted for on a straight-line basis over the term of the lease. Percentage rent expense is generally based on sales levels or changes in the Consumer Price Index. Most leases require payment of property taxes, insurance and maintenance costs in addition to the rent payments. The annual non-cancelable future lease commitments for each of the five years subsequent to May 30, 1999 and thereafter are: $51,035 in 2000; $47,518 in 2001; $43,940 in 2002; $36,981 in 2003; $24,729 in 2004; and $89,869 thereafter, for a cumulative total of $294,072. NOTE 14 - RETIREMENT PLANS - -------------------------- The Company has a defined benefit plan covering most salaried employees and a group of hourly employees with a frozen level of benefits. Benefits for salaried employees are based on length of service and final average compensation. The hourly plan provides a monthly amount for each year of credited service. The Company's funding policy is consistent with the funding requirements of federal law and regulations. Plan assets consist principally of listed equity securities, corporate obligations and U.S. government securities. Components of net periodic benefit cost (income) are as follows: Fiscal Year - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Service cost $ 3,251 $ 2,576 $ 3,250 Interest cost 5,243 4,699 4,686 Expected return on plan assets (10,247) (8,865) (8,318) Amortization of unrecognized transition asset (642) (642) (642) Amortization of unrecognized prior service cost (456) (456) Recognized net actuarial loss 1,088 1,164 1,864 - -------------------------------------------------------------------------------- Net periodic benefit cost (income) $ (1,763) $ (1,524) $ 840 ================================================================================ DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 38 The following provides a reconciliation of the changes in the plan benefit obligation and fair value of plan assets for 1999 and 1998, and a statement of the funded status at May 30, 1999 and May 31, 1998, respectively:
1999 1998 - ------------------------------------------------------------------------------------------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets - ------------------------------------------------------------------------------------------------------- Change in Benefit Obligation: Projected benefit obligation at beginning of year $ 73,112 $ 2,286 $ 59,323 $ 1,974 Service cost 3,251 2,576 Interest cost 5,243 187 4,699 172 Employer contributions 51 61 Actuarial (gain) loss 4,462 (387) 10,282 130 Benefits paid (4,959) (41) (3,768) (51) - ------------------------------------------------------------------------------------------------------- Projected benefit obligation at end of year $ 81,109 $ 2,096 $ 73,112 $ 2,286 ======================================================================================================= Change in Plan Assets: Fair value of plan assets at beginning of year $ 105,010 $ 89,064 Actual return on plan assets 2,489 19,714 Employer contributions 51 61 Benefits paid (4,959) (41) (3,768) (51) - ------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year $ 102,540 $ 10 $ 105,010 $ 10 ======================================================================================================= Funded Status of the Plan: Funded status at end of year 21,431 (2,086) 31,898 (2,276) Unrecognized transition asset (1,926) (2,567) Unrecognized net actuarial loss 24,509 13,047 Unrecognized prior service cost (2,761) (3,218) - ------------------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 41,253 $ (2,086) $ 39,160 $ (2,276) =======================================================================================================
The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the benefit obligations were 7.0 percent and 4.5 percent in 1999, 7.25 percent and 4.5 percent in 1998, and 8.0 percent and 6.0 percent in 1997, respectively. The expected long-term rate of return on plan assets was 10.4 percent. The Company has a defined contribution plan covering most employees age 21 and older with at least one year of service. The Company matches participant contributions up to six percent of compensation on the basis of up to $1.00 for each dollar contributed by the participant. The plan had net assets of $316,846 at May 30, 1999 and $231,220 at May 31, 1998. Expense recognized in 1999, 1998 and 1997 was $5,054, $3,038, and $2,551, respectively. Employees classified as "highly compensated" under the Internal Revenue Code are ineligible to participate in this plan. Amounts due to highly compensated employees under a separate, nonqualified deferred compensation plan totaled $32,471 and $21,230 as May 30, 1999 and May 31, 1998, respectively. The defined contribution plan includes an Employee Stock Ownership Plan (ESOP). This ESOP originally borrowed $50,000 from third parties guaranteed by the Company, and borrowed $25,000 from the Company at a variable interest rate. The $50,000 third party loan was refinanced in 1997 by a commercial bank's loan to the Company and a corresponding loan from the Company to the ESOP. Compensation expense is recognized as contributions are accrued. Contributions to the plan, plus the dividends accumulated on the common stock held by the ESOP, are used to pay principal, interest and expenses of the plan. As loan payments are made, common stock is allocated to ESOP participants. In 1999, 1998, and 1997, the ESOP incurred interest expense of $3,203, $3,882, and $3,815, respectively, and used dividends received of $647, $1,339, and $5,127 and contributions received from the Company of $4,368, $4,538, and $2,548, respectively, to pay principal and interest on its debt. Company shares owned by the ESOP are included in average common shares outstanding for purposes of DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 39 calculating net earnings (loss) per share. At May 30, 1999, the ESOP's debt to the Company had a balance of $60,200 with a variable rate of interest of 5.31 percent; $43,300 of the principal balance is due to be repaid no later than December 2007, with the remaining $16,900 due to be repaid no later than December 2014. The number of Company common shares within the ESOP at May 30, 1999, approximates 12,217,000, representing 9,103,000 unreleased shares and 3,114,000 shares allocated to participants. NOTE 15 - OTHER POST-RETIREMENT BENEFITS - ---------------------------------------- The Company sponsors a plan that provides health-care benefits to its salaried retirees. The plan is contributory, with retiree contributions based on years of service. Components of net periodic post-retirement benefit cost are as follows: Fiscal Year - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Service cost $ 267 $ 225 $ 292 Interest cost 408 375 366 Amortization of unrecognized prior service cost 18 18 67 - -------------------------------------------------------------------------------- Net periodic post-retirement benefit cost $ 693 $ 618 $ 725 ================================================================================ The plan is not funded and therefore there are no plan assets. The following provides a reconciliation of the change in the plan benefit obligation for 1999 and 1998, and a statement of amounts included in the consolidated balance sheets as of May 30, 1999, and May 31, 1998: Fiscal Year - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- Change in Benefit Obligation: Accumulated benefit obligation at beginning of year $ 5,823 $ 4,735 Service cost 267 225 Interest cost 408 375 Employer contributions 22 28 Actuarial (gain) loss (780) 488 Benefits paid (22) (28) - -------------------------------------------------------------------------------- Accumulated benefit obligation at end of year $ 5,718 $ 5,823 - -------------------------------------------------------------------------------- Reconciliation to Balance Sheets: Unrecognized net actuarial gain (loss) 235 (376) Unrecognized prior service cost (100) (118) - -------------------------------------------------------------------------------- Accrued post-retirement benefits $ 5,853 $ 5,329 ================================================================================ The discount rates used in determining the actuarial present value of the benefit obligations were 7.0 percent in 1999 and 7.25 percent in 1998. The health-care cost-trend rate increase in the per-capita charges for benefits ranged from 5.4 to 6.7 percent for 2000, depending on the medical service category. The rates gradually decrease to a range of 4.6 to 5.5 percent for 2010 and remain at that level thereafter. A one percentage-point increase or decrease in the assumed health-care cost-trend rate would increase or decrease the total of the service and interest cost components of net periodic post-retirement benefit cost by $140 and $110, respectively, and would increase or decrease the accumulated post-retirement benefit obligation by $1,099 and $875, respectively. NOTE 16 - STOCK PLANS - --------------------- The Darden Restaurants Stock Option and Long-Term Incentive Plan of 1995 provides for the granting of stock options to key employees at a price equal to the fair market value of the shares at the date of the grant and are for terms not exceeding ten years. Fifteen million shares of common stock are authorized for issuance under the plan; 3,000,000 of these shares are authorized solely for issuance in connection with the granting of stock options in lieu of merit salary increases or other compensation or employee benefits. Such options vest at the discretion of the Compensation Committee. The plan also allows for grants of restricted stock and restricted stock units (RSUs) for up to ten percent of the shares under the plan. No individual may receive in excess of two percent of the total number of shares authorized under the plan in restricted stock or RSUs. Restricted stock and RSUs granted under the plan vest no sooner than one year from the date of grant. No individual may receive awards covering in excess of ten percent of the total number of shares authorized for issuance under the plan. The Darden Restaurants Stock Plan for Non-Employee Directors provides for a one-time grant to each non-employee director of an option to purchase 12,500 shares of common stock and an additional option to purchase 3,000 shares of common stock upon election or re-election at a price equal to the fair market value of the shares at the date of grant. The plan also provides for an annual grant of 3,000 shares of restricted stock to each non-employee director, as well as additional options to purchase shares of common stock in lieu of retainer and meeting fees. The terms of these grants do not exceed ten years. Up to 250,000 shares of common stock may DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 40 be issued under this plan and all options have an exercise price equal to the fair market value of the shares at the date of grant. The Darden Restaurants Compensation Plan for Non-Employee Directors provides that non-employee directors may elect to receive their annual retainer and meeting fees in cash, deferred cash or shares of common stock. The common stock issuable under the plan shall have a fair market value equivalent to the value of the foregone retainer and meeting fees. Fifty thousand shares of common stock are authorized for issuance under the plan. The per share weighted average fair value of stock options granted during 1999, 1998 and 1997 was $10.21, $8.03 and $2.88, respectively. These amounts were determined using the Black Scholes option-pricing model which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, expected dividend payments, and the risk-free interest rate over the expected life of the option. The dividend yield was calculated by dividing the current annualized dividend by the option price for each grant. The expected volatility was determined considering stock prices for the fiscal year the grant occurred and prior fiscal years, as well as considering industry volatility data. The risk-free interest rate was the rate available on zero coupon U.S. government issues with a term equal to the remaining term for each grant. The expected life of the option was estimated based on the exercise history from previous grants. The assumptions used in the Black Scholes model were as follows: Stock Options Granted in Fiscal Year - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Risk-free interest rate 5.60% 6.25% 6.70% Expected volatility of stock 30.0% 25.0% 22.5% Dividend yield 0.1% 0.1% 0.1% Expected option life 6.0 years 5.0 years 6.5 years ================================================================================ The expected option life decrease from 1997 to 1998 resulted principally from a change in the vesting period of Company options from five years to four years. The expected option life increase from 1998 to 1999 resulted principally from the expectation that employees will hold their options longer because of a recent history of consistent Company stock price increases. Since the Company is a relatively new public company, the expected option life may continue to vary as the Company builds a history of employee exercise habits. The Company applies APB 25 in accounting for its stock option plans and, accordingly, no compensation cost has been recognized for its stock options in the Company's financial statements for stock options granted under any of its stock plans. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123, the Company's net earnings (loss) and net earnings (loss) per share would have been reduced to the pro forma amounts indicated below: Fiscal Year - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Net earnings (loss) As reported $ 140,538 $ 101,714 $(91,029) Pro forma $ 134,527 $ 98,047 $(93,154) Basic net earnings (loss) per share As reported $ 1.02 $ 0.69 $ (0.59) Pro forma $ 0.98 $ 0.66 $ (0.60) Diluted net earnings (loss) per share As reported $ 0.99 $ 0.67 $ (0.59) Pro forma $ 0.95 $ 0.65 $ (0.60) ================================================================================ Under SFAS 123, stock options granted prior to 1996 are not required to be included as compensation in determining pro forma net earnings (loss). To determine pro forma net earnings (loss), reported net earnings (loss) have been adjusted for compensation costs associated with stock options granted during 1999, 1998 and 1997 that are expected to eventually vest. DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 41 Stock option activity during the periods indicated is as follows:
Weighted Average Weighted Average Options Exercise Price Options Exercise Price Exercisable Per Share Outstanding Per Share - ---------------------------------------------------------------------------------------------------------- Balance at May 26, 1996 6,177,151 $ 8.23 17,806,193 $ 10.01 - ---------------------------------------------------------------------------------------------------------- Options granted 120,123 $ 8.15 Options exercised (261,227) $ 5.69 Options cancelled (1,603,796) $ 10.67 - ---------------------------------------------------------------------------------------------------------- Balance at May 25, 1997 6,832,479 $ 8.81 16,061,293 $ 10.00 - ---------------------------------------------------------------------------------------------------------- Options granted 3,335,711 $ 9.83 Options exercised (1,463,788) $ 7.26 Options cancelled (1,570,316) $ 10.48 - ---------------------------------------------------------------------------------------------------------- Balance at May 31, 1998 6,286,678 $ 9.55 16,362,900 $ 10.16 - ---------------------------------------------------------------------------------------------------------- Options granted 2,888,554 $ 15.37 Options exercised (2,789,237) $ 9.12 Options cancelled (962,666) $ 9.36 - ---------------------------------------------------------------------------------------------------------- Balance at May 30, 1999 5,883,774 $ 10.53 15,499,551 $ 11.35 ==========================================================================================================
The following table provides information regarding exercisable and outstanding options as of May 30, 1999:
Weighted Weighted Weighted Average Range of Average Average Remaining Exercise Options Exercise Options Exercise Contractual Price Per Share Exercisable Price Per Share Outstanding Price Per Share Life (Years) - ------------------------------------------------------------------------------------------------------------- $ 5.00 - $10.00 2,121,916 $ 8.69 5,606,613 $ 9.04 5.54 $10.01 - $15.00 3,534,524 $ 11.39 6,938,761 $ 11.29 5.32 $15.01 - $20.00 177,334 $ 15.61 2,778,361 $ 15.75 8.47 Over $20.00 175,816 $ 21.82 9.90 - ------------------------------------------------------------------------------------------------------------- 5,833,774 $ 10.53 15,499,551 $ 11.35 6.00 =============================================================================================================
DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 42 NOTE 17 - EMPLOYEE STOCK PURCHASE PLAN - -------------------------------------- Effective January 1, 1999, the Company adopted the Darden Restaurants Employee Stock Purchase Plan to provide eligible employees who have completed one year of service an opportunity to purchase shares of its common stock, subject to certain limitations. Under the plan, employees may elect to purchase shares at the lower of 85 percent of the fair market value of the Company's common stock as of the first or last trading days of each quarterly participation period. During 1999, employees purchased 55,000 shares of common stock. An additional 1,345,000 shares are available for issuance as of May 30, 1999. As the Company applies APB 25 in accounting for its Employee Stock Purchase Plan, no compensation cost has been recognized for shares issued under the plan. The impact of recognizing compensation expense for purchases made under the plan in 1999 in accordance with the fair value method specified in SFAS 123 is not significant to the Company's financial statement disclosures. NOTE 18 - COMMITMENTS AND CONTINGENCIES - --------------------------------------- Darden makes trade commitments in the course of its normal operations and is subject to litigation incident to the conduct of its ongoing business. As of May 30, 1999, the Company was contingently liable for approximately $26,963, primarily relating to outstanding letters of credit. In the opinion of management, there are no unusual commitments or contingencies at May 30, 1999, that would materially affect the financial position or operating results of Darden. NOTE 19 - QUARTERLY DATA (UNAUDITED) - ------------------------------------ Summarized quarterly data for 1999 and 1998 are as follows:
Fiscal 1999 - Quarters Ended - -------------------------------------------------------------------------------------------------------------------- Aug. 30 Nov. 29 Feb. 28 May 30 Total - -------------------------------------------------------------------------------------------------------------------- Sales $ 886,057 $ 791,168 $ 866,907 $ 913,975 $ 3,458,107 Gross Profit 175,105 147,111 182,510 208,464 713,190 Earnings before Interest and Taxes 59,306 29,443 62,939 83,727 235,415 Earnings before Taxes 53,871 24,657 58,517 78,830 215,875 Net Earnings 35,179 15,919 38,353 51,087 140,538 Net Earnings per Share: Basic $ 0.25 $ 0.11 $ 0.28 $ 0.38 $ 1.02 Diluted $ 0.24 $ 0.11 $ 0.27 $ 0.37 $ 0.99 ==================================================================================================================== Fiscal 1998 - Quarters Ended - -------------------------------------------------------------------------------------------------------------------- Aug. 24 Nov. 23 Feb. 22 May 31 Total - -------------------------------------------------------------------------------------------------------------------- Sales $ 809,331 $ 745,263 $ 811,261 $ 921,162 $ 3,287,017 Gross Profit 161,620 132,534 165,650 198,783 658,587 Earnings before Interest and Taxes 40,943 16,509 50,307 65,997 173,756 Earnings before Taxes 36,250 11,786 45,228 60,408 153,672 Net Earnings 24,408 7,530 29,758 40,018 101,714 Net Earnings per Share: Basic $ 0.16 $ 0.05 $ 0.20 $ 0.28 $ 0.69 Diluted $ 0.16 $ 0.05 $ 0.20 $ 0.27 $ 0.67 ====================================================================================================================
DARDEN RESTAURANTS, INC. 1999 Annual Report to Stockholders PAGE 43 Five Year Financial Summary (In thousands, except per share data)
Fiscal Year Ended - -------------------------------------------------------------------------------------------------------------------- Pro Forma Operating Results May 30, 1999 May 31, 1998 May 25, 1997 May 26, 1996 May 28, 1995 - -------------------------------------------------------------------------------------------------------------------- Sales $ 3,458,107 $ 3,287,017 $ 3,171,810 $ 3,191,779 $ 3,163,289 - -------------------------------------------------------------------------------------------------------------------- Costs and Expenses: Cost of Sales: Food and beverages 1,133,705 1,083,629 1,077,316 1,062,624 1,093,896 Restaurant labor 1,117,401 1,062,490 1,017,315 954,886 931,553 Restaurant expenses 493,811 482,311 481,348 455,626 470,194 - -------------------------------------------------------------------------------------------------------------------- Total Cost of Sales $ 2,744,917 $ 2,628,430 $ 2,575,979 $ 2,473,136 $ 2,495,643 - -------------------------------------------------------------------------------------------------------------------- Restaurant Operating Profit 713,190 658,587 595,831 718,643 667,646 - -------------------------------------------------------------------------------------------------------------------- Selling, General and Administrative 360,909 358,542 361,263 373,920 351,197 Depreciation and Amortization 125,327 126,289 136,876 134,599 135,472 Interest, Net 19,540 20,084 22,291 21,406 21,901 Restructuring and asset impairment expense or (credit) (8,461) 229,887 75,000 99,302 - -------------------------------------------------------------------------------------------------------------------- Total Costs and Expenses $ 3,242,232 $ 3,133,345 $ 3,326,296 $ 3,078,061 $ 3,103,515 - -------------------------------------------------------------------------------------------------------------------- Earnings (Loss) before Income Taxes 215,875 153,672 (154,486) 113,718 59,774 Income Taxes 75,337 51,958 (63,457) 39,363 10,600 - -------------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) $ 140,538 $ 101,714 $ (91,029) $ 74,355 $ 49,174 - -------------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) per Share: Basic $ 1.02 $ 0.69 $ (0.59) $ 0.47 $ 0.31 Diluted $ 0.99 $ 0.67 $ (0.59) $ 0.46 - -------------------------------------------------------------------------------------------------------------------- Average Number of Common Shares Outstanding, Net of Shares Held in Treasury (in 000's): Basic 137,300 148,300 155,600 158,700 158,000 Diluted 141,400 151,400 155,600 161,300 ==================================================================================================================== Excluding Restructuring and Asset Impairment Expense or (Credit) Earnings $ 135,313 $ 101,714 $ 54,330 $ 119,204 $ 108,259 Earnings per Share: Basic $ 0.99 $ 0.69 $ 0.35 $ 0.75 $ 0.68 Diluted $ 0.96 $ 0.67 $ 0.35 $ 0.74 ==================================================================================================================== Financial Position Total Assets $ 1,905,660 $ 1,984,742 $ 1,963,722 $ 2,088,504 $ 2,113,381 Land, Buildings and Equipment 1,473,535 1,490,348 1,533,272 1,702,861 1,737,982 Working Capital (deficit) (206,478) (161,123) (143,211) (157,326) (209,609) Long-term Debt 316,451 310,608 313,192 301,205 303,860 Stockholders' Equity 964,036 1,019,845 1,081,213 1,222,637 1,173,962 Stockholders' Equity per Share 7.30 7.23 7.07 7.70 7.43 ==================================================================================================================== Other Statistics Cash Flow from Operations $ 348,220 $ 236,125 $ 189,203 $ 294,032 $ 273,978 Capital Expenditures 123,673 112,168 159,688 213,905 357,904 Dividends Paid 10,857 11,681 12,385 12,647 Dividends Paid per Share 0.08 0.08 0.08 0.08 Advertising Expense $ 180,563 $ 186,261 $ 204,321 $ 239,526 $ 211,904 Number of Employees 116,700 114,800 114,600 119,100 124,700 Number of Restaurants 1,139 1,151 1,182 1,217 1,243 Stock Price: High $ 23.250 $ 18.125 $ 12.125 $ 14.000 $ 10.875 Low 14.313 8.125 6.750 9.750 9.375 Close 21.313 15.438 8.250 11.750 10.875 ====================================================================================================================
EX-21 6 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF DARDEN RESTAURANTS, INC. EXHIBIT 21 SUBSIDIARIES OF DARDEN RESTAURANTS, INC. As of May 30, 1999, the Registrant had one "significant subsidiary", as defined in Regulation S-X, Rule 1-02(w), identified as follows: GMRI,Inc., a Florida corporation, doing business as Red Lobster, Olive Garden and Bahama Breeze. In addition to GMRI, Inc., the Registrant, directly or indirectly, had the following other operating subsidiaries as of May 30, 1999: GMR Restaurants of Pennsylvania, Inc., a Pennsylvania corporation, doing business as Red Lobster and Olive Garden; GMRI Canada, Inc., a Florida corporation, doing business as Red Lobster, Red Lobster Canada, Olive Garden, and Olive Garden Canada; and GMRI Texas L.P., a Texas limited partnership, doing business as Red Lobster and Olive Garden. In order to comply with certain state laws, the Registrant, directly or indirectly, had 65 other subsidiaries as of May 30, 1999. If considered in the aggregate as a single subsidiary as of May 30, 1999, the 65 other subsidiaries would not constitute a "significant subsidiary" as defined in Regulation S-X, Rule 1-02(w). EX-23 7 EXHIBIT 23 EXHIBIT 23 INDEPENDENT ACCOUNTANTS' CONSENT EXHIBIT 23 INDEPENDENT ACCOUNTANTS' CONSENT The Board of Directors Darden Restaurants, Inc.: We consent to incorporation by reference in the Registration Statement (No. 33-93854) on Form S-3 and Registration Statements (Nos. 33-92702 and 33-92704) on Form S-8 of Darden Restaurants, Inc. of our report dated June 18, 1999, relating to the consolidated balance sheets of Darden Restaurants, Inc. and subsidiaries as of May 30, 1999 and May 31, 1998, and the related consolidated statements of earnings (loss), changes in stockholders' equity, and cash flows for each of the fiscal years in the three-year period ended May 30, 1999, which report is incorporated by reference to page 26 of the Registrant's 1999 Annual Report to Stockholders in the May 30, 1999 Annual Report on Form 10-K of Darden Restaurants, Inc. /s/ KPMG LLP Orlando, Florida August 19, 1999 EX-24 8 EXHIBIT 24 EXHIBIT 24 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ H. Brewster Atwater, Jr. ----------------------------------------- H. Brewster Atwater, Jr. Date: August 17, 1999 EXHIBIT 24 (cont.) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Daniel B. Burke ----------------------------------------- Daniel B. Burke Date: August 14, 1999 EXHIBIT 24 (cont.) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Odie C. Donald ----------------------------------------- Odie C. Donald Date: August 13, 1999 EXHIBIT 24 (cont.) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Julius Erving, II ----------------------------------------- Julius Erving, II Date: August 12, 1999 EXHIBIT 24 (cont.) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Michael D. Rose ----------------------------------------- Michael D. Rose Date: August 16, 1999 EXHIBIT 24 (cont.) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Hector de J. Ruiz ----------------------------------------- Hector de J. Ruiz Date: August 14, 1999 EXHIBIT 24 (cont.) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Maria A. Sastre ----------------------------------------- Maria A. Sastre Date: August 17, 1999 EXHIBIT 24 (cont.) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Jack A. Smith ----------------------------------------- Jack A. Smith Date: August 12, 1999 EXHIBIT 24 (cont.) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Bradley D. Blum ----------------------------------------- Bradley D. Blum Date: August 12, 1999 EXHIBIT 24 (cont.) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Richard E. Rivera ----------------------------------------- Richard E. Rivera Date: August 13, 1999 EXHIBIT 24 (cont.) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 30, 1999, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Blaine Sweatt, III ----------------------------------------- Blaine Sweatt, III Date: August 12, 1999 EX-27 9 EXHIBIT 27
5 This schedule contains summary financial information extracted from the consolidated financial statements of Darden Restaurants, Inc. and is qualified in its entirety by reference to such financial statements. 12-MOS MAY-30-1999 MAY-30-1999 40,960 0 20,588 (332) 144,115 327,737 2,418,221 (944,686) 1,905,660 534,215 316,451 0 0 1,328,796 (364,760) 1,905,660 3,458,107 3,458,107 1,133,705 2,744,917 0 0 19,540 215,875 75,337 140,538 0 0 0 140,538 1.02 0.99
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